UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

(MARK ONE)

     [X]  ANNUAL  REPORT  PURSUANT  TO  SECTION  13 OR 15(d)  OF THE  SECURITIES
          EXCHANGE  ACT OF 1934 (Fee  required)
          For Fiscal  year ended June 30, 2006
                          OR
     [ ]  TRANSITION REPORT PURSUANT TO SECTION 13 or 15(D)
          OF THE SECURITIES EXCHANGE ACT OF 1934 (No fee required)
          (NO FEE REQUIRED)

                  For the transition period from _____ to _____

                         Commission file Number 0-19824
                      NUTRITION MANAGEMENT SERVICES COMPANY
             (Exact name of registrant as specified in its charter)

       Pennsylvania                               23-2095332
       ------------                               ----------
(State or other jurisdiction of         (IRS Employer Identification No.)
incorporation or organization)

                725 Kimberton Road, Kimberton, Pennsylvania 19442
                -------------------------------------------------
               (Address of principal executive office) (Zip Code)

Registrant's telephone number, including area code: 610-935-2050
                                                    ------------

Securities registered pursuant to Section 12(b) of the Act:

Name of Each Exchange
on Which Registered         Title of Each Class
-------------------         -------------------

                    None

Securities registered pursuant to Section 12(g) of the Act:

     Title of Each Class
     -------------------

Shares of Class A Common Stock (no par value)


                            (Cover Page 1 of 3 Pages)

                  Indicate  by  checkmark  if  the  registrant  is a  well-known
                  seasoned issuer, as defined in Rule 405 of the Securities Act.

                  YES                  NO         X
                       -----------         --------------

                  Indicate by  checkmark  if the  registrant  is not required to
                  file  reports  pursuant to Section 13 or Section 15 (2) of the
                  Act.

                  YES                  NO         X
                       -----------         --------------

                  Indicate by checkmark whether the registrant (1) has filed all
                  reports  required  to be filed by  Section  13 or 15(d) of the
                  Securities Exchange Act of 1934 during the preceding 12 months
                  (or for such shorter  period that the  registrant was required
                  to file such reports), and (2) has been subject to such filing
                  requirements for the past 90 days.

                  YES      X           NO
                       -----------         --------------

                  Indicate  by check mark if  disclosure  of  delinquent  filers
                  pursuant  to  Item  405 of  Regulation  S-K  is not  contained
                  herein,  and  will  not  be  contained  to  the  best  of  the
                  Registrant's  knowledge,  in definitive  proxy or  information
                  statements  incorporated by reference in Part III of this Form
                  10-K or any amendment to this Form 10-K. [x]

                  Indicate  by  checkmark  whether  the  registrant  is a  large
                  accelerated  filer, an accelerated filer, or a non-accelerated
                  filer (as defined in Exchange Act Rule 12b-2).

                  LARGE ACCELERATED FILER [_] ACCELERATED FILER [_] NON-ACCELERATED FILER [X]

                  Indicate  by  checkmark  whether  the  registrant  is a  shell
                  company (as defined in Rule 12b-2 of the Exchange Act).

                  YES                  NO         X
                       -----------         --------------

                  The  aggregate  market  value of voting  stock (Class A Common
                  Stock, no par value) held by  non-affiliates of the Registrant
                  as of June 30, 2006 was approximately $351,397.

                  Indicate  the  number  of  shares  outstanding  of each of the
                  issuer's classes of common stock, as of the latest practicable
                  date:  At August 25,  2006,  there was  outstanding  2,747,000
                  shares of the Registrant's Class A Common Stock, no par value,
                  and 100,000 shares of the  Registrant's  Class B Common Stock,
                  no par value.


                            (Cover Page 2 of 3 Pages)


                  DOCUMENTS INCORPORATED BY REFERENCE

                  The  information  required  by Part III for Form  10-K will be
                  incorporated by reference to certain  portions of a definitive
                  proxy   statement  which  is  expected  to  be  filed  by  the
                  Registrant  pursuant to  Regulation  14A within 120 days after
                  the close of its fiscal year.

                  This  report   consists  of   consecutively   numbered   pages
                  (inclusive of all exhibits and including this cover page). The
                  Exhibit Index appears on page 21.


                            (Cover Page 3 of 3 Pages)


PART I

ITEM 1 - BUSINESS

GENERAL

Nutrition  Management  Services  Company  (the  "Company"  or the  "Registrant")
provides food,  facilities  operations and housekeeping  management  services to
continuing care facilities, hospitals, retirement communities and schools.

The Company was incorporated  under the laws of the Commonwealth of Pennsylvania
on March 28, 1979, and focuses on the continuing care and  health-care  segments
of the food service market.  Its customers  include  continuing care facilities,
hospitals and retirement communities.

On November 25, 1991, the Company organized Apple Management Services Company to
provide management service expertise.

On May 31, 1994, the Company purchased  twenty-two (22) acres of land containing
a  40,000  square  foot  building  formerly  used as a  restaurant  and  banquet
facility.  The  Company  renovated  the  property  to serve  as a  comprehensive
training facility for Company employees.  In addition,  the facility serves as a
showroom for  prospective  customers who can observe the Company's  programs for
nursing  and  retirement  home  dining and  hospital  cafeteria  operations.  In
September  1997,  the  Company  opened  the  retail  restaurant  portion  of the
Collegeville  Inn Conference & Training  Center.  In connection  therewith,  the
Company  expended  approximately  $6,000,000  in  renovation  work  through  the
issuance of two twenty-year  bonds dated December 1996 and its internal  working
capital.  The Company opened the banquet and training division during its second
quarter of fiscal year 1998. The remaining division of the project was available
for operations in the third quarter of fiscal 2000. Effective June 27, 2005, the
Company  closed the buffet  restaurant at the  Collegeville  Inn  Conference and
Training Center to make the facility available for catered events.

On November 14, 1997, the Company organized Apple Fresh Foods, Ltd. to develop a
cook-chill  food  preparation  technology  for use in the Company's food service
business.  Apple Fresh Foods,  Ltd.  operations are located in the  Collegeville
Inn.

The Company is exploring all  reasonable  alternatives  to improve its operating
results,  including but not limited to,  increasing  food service  revenues with
targeted marketing efforts,  increasing  revenues from the sale of the Company's
Cook Chill products,  the sale or lease of all or part of the  Collegeville  Inn
Conference  and Training  Center,  sale of excess land at the  Collegeville  Inn
Conference and Training Center and reduction of operating expenses. There can be
no assurance as to the success of any or all of these alternatives.


                                       2


FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

See Note O on page F-20 of the Consolidated Financial Statements.

DESCRIPTION OF SERVICES

The Company  provides  contract food,  facilities  operations  and  housekeeping
services to continuing care facilities,  hospitals,  retirement  communities and
schools.  The  Company  provides  complete  management  and  supervision  of the
dietary,  facilities and  housekeeping  operations in its customers'  facilities
through the use of on-site management staff, quality and cost-control  programs,
and training and education of dietary staff. The Company's operational districts
are supported by Regional Managers, District Managers, Registered Dietitians and
Quality Assurance staff.

The  Company  seeks to provide its  services  at a lower cost than  self-managed
facilities,  while maintaining or improving  existing service,  nutritional care
standards and regulatory compliance.

MARKETING AND SALES

The  Company's  customers  include  continuing  care  facilities,  hospitals and
retirement communities,  which range in size from small individual facilities to
large multi-facility operations. Although many facilities perform their own food
service  functions  without  relying upon outside  management  firms such as the
Company,  the Company  expects the market for its services to grow as facilities
increasingly  seek to contain  costs and are  required to comply with  increased
governmental regulations.

The  Company's  services  are  marketed  at the  corporate  level  by its  Chief
Executive Officer,  its President,  and its Operating  Personnel.  The Company's
services are marketed  primarily through  in-person  solicitation of facilities.
The Company also utilizes direct mail and participates in industry trade shows.

MARKET FOR SERVICES

The market for the Company's  services  consists of a large number of facilities
involved  in various  aspects of the  continuing  care and health  care  fields,
including nursing homes,  retirement  communities,  hospitals and rehabilitation
centers.  Such  facilities  may be specialized  or general,  privately  owned or
publicly  traded,  for  profit or  not-for-profit  and may serve  residents  and
patients on a continuing or short-term basis.


                                       3


SERVICE AGREEMENTS

The Company provides its services under several different financial arrangements
including  a fee basis and  guaranteed  rate  basis.  As of June 30,  2006,  the
Company provided  services under various service  agreements at forty-seven (47)
facilities. At certain of these facilities, the Company has contracts to provide
vending  services  and  housekeeping  services in  addition  to the  contract to
provide  food  services.  Most of these  contracts  have one year  terms and are
automatically  renewable  at the  end  of  each  service  year.  The  agreements
generally  provide that either party may cancel the  agreement  upon ninety (90)
days written notice.

In consideration  for providing its services,  the Company expects to be paid by
its clients in accordance  with the credit terms agreed upon which range from 30
days to 90 days.

MAJOR CUSTOMER

The  Company's  Food  Service  Management  Segment had sales to three  customers
representing  approximately the following percentage of total revenues,  for the
years ended June 30, 2006, 2005, and 2004, respectively:

                                    Years Ending June 30,
                                    ---------------------
                                    2006    2005     2004
                                    ----    ----     ----
Customer A                          34%     29%      28%
Customer B                          14%     21%      20%
Customer C                          10%     11%       8%

The loss of any of these customers could have a material  adverse effect on the
Company's future results of operations.

COMPETITION

The Company  competes mainly with regional and national food service  management
companies  operating in the continuing care and health care industries,  as well
as with the self managed departments of its potential clients.

Although the  competition  to service these  facilities is intense,  the Company
believes that it competes effectively for new agreements as well as for renewals
of existing agreements based upon the quality and dependability of its services.
The  Company's  ability  to compete  successfully  depends  upon its  ability to
maintain and improve  quality,  service and  reliability,  to attract and retain
qualified  employees  and to  continue  to  expand  its  marketing  and  service
activities.

EMPLOYEES

At June 30, 2006, the Company employed a total of  approximately  250 employees.
Approximately  137 of those  employees serve in various  executive,  management,
administrative,  quality  assurance  and sales  capacities.  The  remaining  113
employees are primarily dietary and housekeeping workers. Approximately 80 (71%)
of the Company's  dietary and  housekeeping  workers are covered by a collective
bargaining agreement. The Company's collective bargaining agreement commenced in


                                       4


2003 and ended in August 2006. The Company is currently involved in negotiations
to enter into a new collective  bargaining  agreement,  although there can be no
assurance that a new collective  bargaining  agreement will be entered into. The
Company makes  contributions  to the union's  benefits  funds as required by the
collective  bargaining  agreement.  The Company considers its relationships with
its employees and unions to be satisfactory.

PURCHASING

For the years  ended June 30,  2006,  2005 and 2004,  respectively,  the Company
purchased the following  percentages of its food and non-food  products from two
vendors:

                                    Years Ended June 30,
                                    --------------------
                                     2006    2005     2004
                                    -----    ----     ----
                Vendor A:            38%      45%      40%
                Vendor B:            19%      19%      18%

While the Company maintains a good relationship with these vendors, in the event
of a  disruption  in  the  Company's  relationship  with  these  vendors  or any
disruption in the vendors' business, the Company has alternate sources of supply
for its food and non-food products.

FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES

Not applicable.

ITEM 1A - RISK FACTORS

Investors  should be aware of several  risks  before  investing  in the  Company
including  but not limited to (i) the Company had a net loss of $820,442 for the
fiscal year ended June 30, 2006,  (ii) the  Company's  revenues  decreased  from
$26,602,161  for fiscal year ended June 30, 2005 to  $23,366,435  for the fiscal
year ended June 30,  2006,  (iii) the Company had working  capital of 687,123 at
June 30, 2006 as compared to working  capital of  $1,581,159  at June 30,  2005,
(iv) the Company was not in compliance  with certain of its covenants  under its
Loan  Facility,  (v) the  Company's  Class A Common  stock is traded on the Pink
Sheets and hence  there is limited  liquidity  of the  Company's  Class A Common
Stock,  (vi) the Company has never paid any  dividends  and its credit  facility
prohibits  it from  paying any cash  dividends,  and (vii) the  Company's  Chief
Executive  Officer  is the  holder of in excess of 70% of the  Company's  voting
stock.

ITEM 1B - UNRESOLVED STAFF COMMENTS

The Company is unaware of any unresolved staff comments.

ITEM 2 - PROPERTIES

The  Company  leases  its  corporate  offices,  located at 725  Kimberton  Road,
Kimberton,  Pennsylvania, which consists of approximately 8,500 square feet from
Ocean 7, Inc., a corporation  controlled by the Chief  Executive  Officer of the
Company.  Currently  the  lease  is on a  month-to-month  lease  based  on terms
generally similar to those prevailing to unrelated parties.


                                       5


During the three years ended June 30, 2006,  2005 and 2004, the Company paid the
related  party  entity rent in the amounts of $261,165,  $259,758 and  $261,766,
respectively.  The  Company  leases  an  apartment  from  the  same  company  to
accommodate visiting clients and employees.

In  addition,  the Company is provided  with office  space at each of its client
facilities.

The  Company  owns  approximately  twenty-two  acres  of land  in  Collegeville,
Pennsylvania.  In 1997,  the Company  completed its  renovations  of an existing
40,000  square foot  building  to serve as a training  facility  and  conference
center.

The Company presently owns food service equipment,  computers, office furniture,
and equipment,  automobiles and trucks.  Management believes that all properties
and  equipment  are  sufficient  for  the  conduct  of  the  Company's   current
operations.

ITEM 3 - LEGAL PROCEEDINGS

On February  7, 2001,  the Company  filed a suit  against a major  client in the
Court of Common Pleas of Chester County,  Pennsylvania,  which was  subsequently
removed  to the  United  States  District  Court  for the  Eastern  District  of
Pennsylvania.  On February 25,  2005,  judgment was entered on a jury verdict in
favor of the Company,  in the amount of  $2,500,000  for damages  related to its
claims, including breach of contract and contractual interference.  The client's
counterclaim was dismissed by the judge.  The Company filed a post-trial  motion
to amend the judgment to add prejudgment  interest.  On June 1, 2006 this motion
was  denied.  For the year ended June 30,  2005,  the jury award is  reported as
Other Income, net of legal fees and related expenses in the amount of $378,762.

The Company is involved in litigation with a construction  contractor related to
the renovations of Collegeville Inn Conference and Training Center.  The Company
denies  its  liability  for the  contractor's  claims and has  asserted  offsets
against the amounts claimed. The case is currently in discovery.

Although  it is not  possible  to  predict  with  certainty  the  outcome of the
unresolved legal action, or the range of possible loss or recovery,  the Company
believes these  unresolved  legal actions will not have a material effect on its
financial position or results of operations.

In  addition  to the  litigation  described  above,  the  Company  is exposed to
asserted and unasserted claims in the normal course of business.  In the opinion
of management,  the resolution of these matters will not have a material adverse
effect on the Company's financial position, results of operations or cash flows.

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.


                                       6


PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES

The Company's Class A Common Stock No Par Value, (the "Class A Common Stock") is
currently  trading on the OTC Pink Sheets  (Ticker  Symbol - NMSCA.PK)  and is a
penny stock. The Company's Class A Common Stock traded on the OTC Bulletin Board
until January 7, 2005,  at which time trading  commenced on the OTC Pink Sheets.
Securities and Exchange Commission regulations generally define a penny stock to
be an equity  security  that is not  listed on NASDAQ or a  national  securities
exchange  and that has a market  price of less than $5.00 per share,  subject to
certain  exceptions.  The regulations of the Securities and Exchange  Commission
require broker-dealers to deliver to a purchaser of the Company's Class A Common
Stock a  disclosure  schedule  explaining  the penny stock  market and the risks
associated  with it.  Various sales  practice  requirements  are also imposed on
broker-dealers who sell penny stocks to persons other than established customers
and accredited investors (generally institutions).  In addition,  broker-dealers
must provide the customer  with current bid and offer  quotations  for the penny
stock,  the  compensation  of  the  broker-dealer  and  its  salesperson  in the
transaction  and monthly  account  statements  showing the market  value of each
penny stock held in the customer's account.

The following  table shows the range of high and low bid  quotations as reported
on the OTC  Electronic  Bulletin  Board or the OTC Pink Sheets for the  quarters
ending during the last two fiscal years for the Class A Common Stock:

         Fiscal 2006                 High               Low
         ------------------          ----               ---
         Fourth Quarter              $0.45             $0.40
         Third Quarter                0.43              0.35
         Second Quarter               0.65              0.35
         First Quarter                0.55              0.37

         Fiscal 2005                 High               Low
         ------------------          ----               ---
         Fourth Quarter              $0.40             $0.33
         Third Quarter                0.35              0.31
         Second Quarter               0.58              0.27
         First Quarter                0.75              0.58

The  prices   presented  are  bid  prices,   which   represent   prices  between
broker-dealers  and  do  not  include  retail  mark-ups  and  mark-downs  or any
commission  to the  broker-dealer.  The above  prices do not  reflect  prices in
actual transactions.

HOLDERS

As of August 25, 2006, there were approximately  forty (40) holders of record of
the Class A Common Stock.


                                       7


DIVIDENDS

The Company has not paid any  dividends on its Class A or Class B Common  Stock.
It is not expected  that the Company will pay any  dividends in the  foreseeable
future.  The  Company's  credit  facilities  prohibit  it from  paying  any cash
dividends.

ITEM 6 - SELECTED FINANCIAL DATA

The  selected  historical  financial  data  presented  below  should  be read in
conjunction  with,  and is  qualified  in its  entirety  by  reference  to,  the
Consolidated Financial Statements and the notes thereto.

                                                                                Years Ended June 30
                                                                                -------------------
                                                           2006            2005            2004            2003            2002
                                                           ----            ----            ----            ----            ----

Revenue                                                $ 23,366,435    $ 26,602,161    $ 27,999,905    $ 27,306,030    $ 29,906,631
Gross profit                                              4,273,467       4,914,568       5,257,520       4,621,590       6,223,884
Loss from Operations                                     (1,151,505)       (770,800)       (856,851)     (1,099,435)        (86,087)
Other income/(expense)                                     (198,203)      1,854,038        (195,283)       (217,393)       (290,616)
Net income/(loss)                                          (820,442)        775,657        (850,434)       (819,441)       (286,724)

Per share of common stock (basic and diluted):
Net income/(loss)                                      $      (0.29)   $       0.27    $      (0.30)   $      (0.29)   $      (0.10)
                                                       ============    ============    ============    ============    ============

Weighted average common shares
outstanding (basic and diluted)                           2,847,000       2,847,000       2,847,000       2,847,000       2,847,000
                                                       ============    ============    ============    ============    ============


                                                                                    As of June 30
                                                                                    -------------
                                                           2006            2005            2004            2003            2002
                                                           ----            ----            ----            ----            ----
Working capital                                        $    687,123    $  1,581,159    $    226,441    $  1,726,474    $  2,923,148
Total assets                                             13,967,438      16,190,634      14,279,295      15,142,714      17,352,016
Long-term debt                                            5,714,922       5,604,921       5,376,922       5,339,343       6,273,998
Stockholders' equity                                      4,584,898       5,413,580       4,629,683       5,480,117       6,299,558


                                       8


ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                 CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

This Form 10-K contains certain forward looking statements within the meaning of
Section 27A of the  Securities  Act of 1993, as amended,  and Section 21E of the
Securities Exchange Act of 1934 as amended,  which are intended to be covered by
the safe  harbors  created  thereby.  Although  the  Company  believes  that the
assumptions  underlying  the  forward-looking  statements  contained  herein are
reasonable, any of the assumptions could be inaccurate, and therefore, there can
be no assurance that the  forward-looking  statements included in this Form 10-K
will prove to be accurate.

In  light  of the  significant  uncertainties  inherent  in the  forward-looking
statements  included  herein,  the inclusion of such  information  should not be
regarded  as a  representation  by the  Company  or any  other  person  that the
objectives and plans of the Company will be achieved.

RESULT OF OPERATIONS YEAR ENDED JUNE 30, 2006 COMPARED TO YEAR ENDED JUNE 30, 2005

Revenues for the year ended June 30, 2006 ("Fiscal  2006") were  $23,366,435,  a
decrease of $3,235,726 or 12.2% compared to revenues of $26,602,161 for the year
ended June 30, 2005 ("Fiscal  2005").  This decrease is primarily due to the net
impact of revenues from new  contracts  versus  revenues from lost  contracts as
well as lower revenues from the  Collegeville  Inn.  Effective June 27, 2005 the
Company closed the buffet  restaurant at  Collegeville  Inn to make the facility
available for catered events.

Cost of operations  for Fiscal 2006 was  $19,092,968  compared to $21,687,593 in
Fiscal  2005,  a decrease  of  $2,594,625  or 12.0%.  This  decrease in costs of
operations  is  primarily  related to lower  revenues  during the period and the
expenses associated with those revenues.

Gross  profit for Fiscal 2006 was  $4,273,467  or 18.3% of revenue,  compared to
$4,914,568  or 18.5% of revenue in Fiscal 2005, a decrease of $641,101 or 13.0%.
The decrease in gross profit is due to the net impact of new  contracts and lost
contracts,  which was partially offset by the renegotiation of contract rates in
the normal course of business.

General and administrative  expenses for Fiscal 2006 were $4,965,732 or 21.3% of
revenue, compared to $4,943,466 or 18.6% of revenue for Fiscal 2005, an increase
of $22,265 or 0.1%. These increases are due to additional marketing and business
development  positions,  higher  professional  fees and travel related  expenses
associated with new business. Salary and payroll related expenses for additional
management  support personnel also contributed to the increase over the previous
year.

Depreciation and amortization for Fiscal 2006 was $399,240, compared to $576,902
for Fiscal 2005.

Provision for doubtful accounts for Fiscal 2006 was $60,000 compared to $165,000
for  Fiscal  2005.  The  decrease  is due to the  Company  having  a  sufficient
provision  providing  for  potential  non-payments  on a specific  customer  and


                                       9


general  unallocated  basis. The provision for doubtful  accounts  represents an
estimate of amounts considered  uncollectible  based on specifically  identified
amounts that we believe to be based on historical collection experience, adverse
situations  that may  affect  the  customers  ability  to repay  and  prevailing
economic  conditions.  As a result there was no additional provision provided in
the third or fourth quarter of Fiscal 2006.

Loss from operations for Fiscal 2006 was $1,151,505 or 4.9% of revenue  compared
to  $770,800  or 2.9% of revenue  for Fiscal  2005,  an  increase of $380,704 or
49.4%.  This increase in loss from operations is due to the decrease in revenues
and gross profit resulting from the impact of new and lost contracts.

Interest  expense for Fiscal 2006 was  $404,494 or 1.7% of revenue,  compared to
$279,245 or 1.0% of revenue for Fiscal 2005.  This  increase is primarily due to
the continued rise in interest rates in Fiscal 2006.

Other income for Fiscal 2006 was  $128,276 or .6% of revenues  compared to other
expense of $2,121,238  or 8.0% of revenue for Fiscal 2005.  Fiscal 2006 includes
the gain on sale of securities  sold in the third quarter of 2006 as well as the
receipt of funds for the  Company  granting  an  easement  on  Collegeville  Inn
property.  Fiscal 2005 includes the receipt of the proceeds from the  successful
resolution of the litigation as detailed in Item 3-Legal  Proceedings.  The jury
award of $2,500,000 is reflected net of legal and related expenses in the amount
of $378,762.

For the reasons  stated above,  net loss before income taxes for Fiscal 2006 was
$1,349,708  or 5.8% of  revenue  compared  to  income  before  income  taxes  of
$1,083,238 or 4.1% of revenue for Fiscal 2005.

The net loss for Fiscal  2006 was  $820,442  or 0.29 per share  compared  to net
income of $775,657 or $0.27 per share for Fiscal 2005.

RESULT OF OPERATIONS YEAR ENDED JUNE 30, 2005 COMPARED TO YEAR ENDED JUNE 30, 2004

Revenues for the year ended June 30, 2005 ("Fiscal  2005") were  $26,602,161,  a
decrease of $1,397,744 or 5.0% compared to revenues of $27,999,905  for the year
ended June 30, 2004 ("Fiscal  2004").  This decrease is primarily due to the net
impact of revenues from new contracts versus revenues from lost contracts.

Cost of operations  for Fiscal 2005 was  $21,687,593  compared to $22,742,385 in
Fiscal  2004,  a decrease  of  $1,054,792  or 4.6%.  This  decrease  in costs of
operations is related to the decrease in revenues during the period.

Gross  profit for Fiscal 2005 was  $4,914,568  or 18.4% of revenue,  compared to
$5,257,520  or 18.8% of revenue in Fiscal  2004, a decrease of $342,952 or 6.5%.
The decrease in gross profit is due to the net impact of new  contracts and lost
contracts,  which was partially offset by the renegotiation of contract rates in
the normal course of business.

General and administrative  expenses for Fiscal 2005 were $4,943,467 or 18.6% of
revenue, compared to $4,909,172 or 17.5% of revenue for Fiscal 2004, an increase
of  $34,295  or  0.7%.  The  increase  is  due to  higher  expenses  related  to


                                       10


professional  fees and  insurance,  offset by lower payroll and payroll  related
costs.

Depreciation and amortization for Fiscal 2005 was $576,902, compared to $620,199
for Fiscal 2004.

Provision  for  doubtful  accounts  for Fiscal  2005 was  $165,000  compared  to
$585,000 for Fiscal 2004.  The decrease is due the Company's  decision in Fiscal
2004 to increase the  provision  for doubtful  accounts  with respect to certain
delinquent customers.

Loss from operations for Fiscal 2005 was $770,800 or 2.9% of revenue compared to
$856,851  or 3.1% of revenue  for Fiscal  2004,  a decrease of $86,050 or 10.0%.
This improvement over Fiscal 2004 is due to lower  depreciation  expense and bad
debt expense, as well as certain operating efficiencies.

Interest  expense for Fiscal 2005 was  $279,245 or 1.0% of revenue,  compared to
$186,699 or 0.7% of revenue for Fiscal 2004.  This  increase is primarily due to
an increase in interest rates in Fiscal 2005.

Other  income for Fiscal 2005 was  $2,121,238  or 8.0 % of revenues  compared to
other expense of $18,148 or 0.0% of revenue for Fiscal 2004. The increase is due
to the Company's  receipt of the proceeds  from the  successful  resolution  the
litigation as detailed in Item 3-Legal Proceedings. The jury award of $2,500,000
is reflected net of legal and related expenses in the amount of $378,762.

For the reasons  stated  above,  income  before income taxes for Fiscal 2005 was
$1,083,238  or 4.1%  of  revenue  compared  to a loss  before  income  taxes  of
$1,052,134 or 3.8% of revenue for Fiscal 2004.

The net income for Fiscal 2005 was  $775,657  or 0.27 per share  compared to net
loss of $850,434 or $0.30 per share for Fiscal 2004.

LIQUIDITY AND CAPITAL RESOURCES

The Company's  requirement  for capital is to fund (i) sales  growth,  (ii) food
purchases  and  wage  costs  at  certain   facilities  in  advance  of  customer
reimbursement,  and (iii)  financing  for  acquisitions.  Our primary  source of
financing during 2006 and 2005 was cash flow from operations.

At June 30,  2006,  the Company  had working  capital of $687,123 as compared to
working capital of $1,581,159 at June 30, 2005. This decrease in working capital
is  primarily  attributable  to the  reduction  of accounts  payable and accrued
expenses as well as the current  operating  losses.  Cash used by operations for
Fiscal 2006 was  $1,614,930,  compared to $1,868,859  provided by operations for
Fiscal  2005.  Fiscal  2005  includes  the  Company's  receipt of the jury award
related to the  successful  resolution of the  litigation  discussed in Item 3 -
Legal Proceedings.


                                       11


Investing  activities  provided  $213,881 in cash during Fiscal 2006 compared to
$4,313 in cash used during  Fiscal 2005.  Investing  activities  for Fiscal 2006
include  capital  expenditures  in the  amount of $46,685 as well as the sale of
marketable  securities  of $249,577.  During Fiscal 2006,  financing  activities
provided $125,000 in cash,  primarily due to proceeds from the Company's line of
credit, compared to $78,547 provided during Fiscal 2005.

The Company has certain  credit  facilities  with its bank including a revolving
credit of $3,500,000.  At June 30, 2006, the Company had $3,500,000  outstanding
under its revolving  credit.  The Company has pledged a $250,000  Certificate of
Deposit as  additional  collateral  against the  revolving  line of credit.  The
Company issued two series of Industrial  Bonds  totaling  $3,560,548 in December
1996. The  outstanding  balance on the bonds was $2,380,000 as of June 30, 2006.
In October,  2006, the Company entered into an agreement whereby the credit loan
facility was extended to July 1, 2007.

The Loan Facility contains certain covenants that include maintenance of certain
financial  ratios,  maintenance of minimum levels of working  capital as well as
affirmative  and  negative  covenants.  At June 30,  2006 the Company was not in
compliance  with its bank  covenants.  While not waiving  these  covenants,  the
Company and the bank reached an  agreement  on October 15, 2006 which  maintains
the  revolving  credit  line in place to July 1, 2007.  The  Company  intends to
replace or retire this debt prior to that date.

                                                    Payment Due By Period
                           ----------------------------------------------------------------------
                                          Less than 1
Contractual Obligations      Total           year      2 - 3 years    4 - 5 years   After 5 years
                             -----           ----      -----------    -----------   -------------
Long-Term Debt  *          $5,879,922     $  165,000   $3,849,922     $ 390,000       $1,475,000
Operating Leases           $   28,350     $   23,485   $    4,865           --               --
Total Contractual Cash
Obligations                $5,908,272     $  188,485   $3,854,787     $ 390,000       $1,475,000
                           ==========     ==========   ==========     =========       ==========


* Long-Term  Debt includes the $3,499,922  outstanding  balance on the revolving
credit facility.

                                               Amount of Commitment Expiration
                                                      Per Period
                                  -----------------------------------------------------
  Other
Commercial        Total Amounts   Less than 1
Commitments         Committed        year      1 - 3 years   4 - 5 Years   Over 5 Years
-----------         ---------        ----      -----------   -----------   ------------

Lines of Credit    $3,500,000     $3,500,000   $     --      $    --       $    --

Standby Letter
of Credit          $3,065,000           --     $3,065,000         --            --
Total Commercial
Commitments        $6,565,000     $3,500,000   $3,065,000         --            --
                   ==========     ==========   ==========    ===========   =============

Based upon its present  plans,  management  believes that  operating  cash flow,
available  cash  and  available  credit  resources  will  be  adequate  to  make
repayments of indebtedness  described  herein,  to meet the working capital cash


                                       12


needs of the Company and to meet anticipated  capital  expenditure  needs during
the twelve months ending June 2007.

The Company is exploring all  reasonable  alternatives  to improve its operating
results,  including but not limited to,  increasing  food service  revenues with
targeted marketing efforts,  increasing  revenues from the sale of the Company's
Cook Chill products,  the sale or lease of all or part of the  Collegeville  Inn
Conference  and Training  Center,  sale of excess land at the  Collegeville  Inn
Conference and Training  Center and reduction of operating  expenses.  Effective
June 27, 2005, the Company closed the buffet  restaurant at the Collegeville Inn
Conference  and  Training  Center to make the  facility  available  for  catered
events.  There  can be no  assurance  as to the  success  of any or all of these
alternatives.

In an effort to extend its current bank debt, the Company may seek to access the
public equity market whenever conditions are favorable, even if it does not have
an immediate  need for additional  capital at that time. Any additional  funding
may result in significant  dilution and could involve the issuance of securities
with rights, which are senior to those of existing stockholders. The Company may
also  need   additional   funding  earlier  than   anticipated,   and  its  cash
requirements,  in  general,  may vary  materially  from those now  planned,  for
reasons  including,  but not limited to,  competitive  advances  and higher than
anticipated expenses and lower than anticipated revenues from operations.

NEW ACCOUNTING PRONOUNCEMENTS

In November 2004, the Financial  Accounting Standards Board ("FASB") issued SFAS
No. 151, "INVENTORY COSTS - AN AMENDMENT TO ARB NO. 43." This statement provides
guidance  to clarify  the  accounting  for  abnormal  amounts  of idle  facility
expense,  freight  handling costs, and wasted material  (spoilage),  among other
production costs. Provisions of ARB No. 43 stated that under some circumstances,
items such as idle facility expense,  excessive  spoilage and other costs may be
so abnormal as to require  treatment as current period  charges.  This statement
requires that those items be recognized as current period charges  regardless of
whether they meet the criterion of "so abnormal." In addition, SFAS 151 requires
that  allocation  of fixed  production  overheads to the costs of  conversion be
based on the normal capacity of the production facilities.  The adoption of this
statement is required for fiscal years beginning  after June 15, 2005.  Adoption
of the  Statement  is not  expected to have a material  impact on the  financial
statements of the Company.

In  November  2004,  the FASB issued  SFAS No. 152  "ACCOUNTING  FOR REAL ESTATE
TIME-SHARING  TRANSACTIONS - AN AMENDMENT OF SFAS NO. 66 AND 67". This Statement
amends SFAS No. 66  "ACCOUNTING  FOR SALES OF REAL  ESTATE",  to  reference  the
financial  accounting  and  reporting  guidance  for  real  estate  time-sharing
transactions  that is  provided  in AICPA  Statement  of  Position  (SOP)  04-2,
Accounting for Real Estate Time-Sharing Transactions. This Statement also amends
SFAS No. 67,  "ACCOUNTING FOR COSTS AND INITIAL RENTAL OPERATIONS OF REAL ESTATE
PROJECTS," to state the guidance for (a) incidental costs and (b) costs incurred
to sell  real  estate  projects  does  not  apply  to real  estate  time-sharing
transactions.  The  accounting  for those  operations  and costs is  subject  to
guidance in SOP 04-2,  effective  for  financial  statements  with fiscal  years
beginning  after June 15,  2005.  Adoption of this  statement is not expected to
have a material impact on the financial statements of the Company.


                                       13


In November 2004, the FASB issued SFAS No. 153, "EXCHANGES OF NONMONETARY ASSETS
- AN AMENDMENT TO APB NO. 29." This Statement amends Opinion No. 29 to eliminate
the  exception  for  nonmonetary  exchanges  of  similar  productive  assets and
replaces it with a general exception for exchanges of nonmonetary assets that do
not have commercial  substance.  A nonmonetary exchange has commercial substance
if the future cash flows of the entity are expected to change significantly as a
result of the  exchange.  The adoption of this  statement is required for fiscal
years beginning after June 15, 2005.  Adoption of this statement is not expected
to have a material impact on the financial statements of the Company.

In May  2005,  the FASB  issued  SFAS No.  154  "ACCOUNTING  CHANGES  AND  ERROR
CORRECTIONS".  This Statement  replaces APB Opinion No. 20, Accounting  Changes,
and FASB Statement No. 3,  "REPORTING  ACCOUNTING  CHANGES IN INTERIM  FINANCIAL
STATEMENTS",  and changes the  requirements for the accounting for and reporting
of a change in accounting  principle.  This  Statement  applies to all voluntary
changes in  accounting  principle.  It also  applies to changes  required  by an
accounting pronouncement in the unusual instance that the pronouncement does not
include specific transition  provisions.  When a pronouncement includes specific
transition  provisions,  those provisions  should be followed.  Adoption of this
statement is required for fiscal years  starting  after  December 15, 2005.  The
adoption of this  statement  is not  expected  to have a material  impact on the
consolidated financial statements of the Company.

In  December  2004,  the FASB issued SFAS No. 123  (Revised  2005)  "SHARE-BASED
PAYMENT."  The  statement  requires  that  the  compensation  cost  relating  to
share-based  payment  transactions be recognized in financial  statements.  That
cost  will be  measured  based on the  fair  value of the  equity  or  liability
instrument issued. The statement covers a wide range of share-based compensation
arrangements including share options, restricted share plans,  performance-based
awards,  share  appreciation  rights,  and employee  share purchase  plans.  The
Company was required to adopt SFAS 123 (R) as of July 1, 2005.

CRITICAL ACCOUNTING POLICIES

The discussion and analysis of our financial condition and results of operations
are based upon the Company's consolidated financial statements,  which have been
prepared in accordance  with  accounting  principles  generally  accepted in the
United States of America. The preparation of these financial statements requires
the Company to make estimates and judgments  that affect the reported  amount of
assets and  liabilities,  revenues  and  expenses,  and  related  disclosure  of
contingent  assets  and  liabilities  at the  date  of the  Company's  financial
statements.  Actual  results may differ  from these  estimates  under  different
assumptions or conditions.

Critical  accounting  policies  are  defined  as those  that are  reflective  of
significant  judgments and  uncertainties,  and potentially result in materially
different  results  under  different  assumptions  and  conditions.  The Company
believes that its critical accounting policies include those described below.

REVENUE RECOGNITION

Revenue  is  generated  primarily  from  fees for food  service  management  and
facilities management at continuing care and health care facilities, schools and
the Collegeville Inn Conference and Training Center.  Revenue is recognized when
services  are  performed.  Ongoing  assessments  of  the  credit  worthiness  of


                                       14


customers  provide the  Company  reasonable  assurance  of  collectibility  upon
performance of services.

ACCOUNTS RECEIVABLE

The Company  performs  ongoing  credit  evaluations of its customers and adjusts
credit  limits  based on  payment  history  and the  customer's  current  credit
worthiness,  as determined by a review of their current credit information.  The
Company  continuously  monitors  collections and payments from its customers and
maintains a provision for estimated credit losses based on historical experience
and any specific  customer  collection  issues that have been identified.  While
such credit losses have historically been within the Company's  expectations and
the provisions  established,  the Company cannot guarantee that it will continue
to experience the same credit loss rates that it has in the past.

IMPAIRMENT OR DISPOSAL OF LONG LIVED ASSETS

The carrying  value of property,  plant,  and equipment is evaluated  based upon
current and  anticipated  undiscounted  operating cash flows before debt service
charges.  An impairment is  recognized  when it is probable that such  estimated
future  cash  flows  will  be  less  than  the  carrying  value  of the  assets.
Measurement  of the amount of  impairment,  if any, is based upon the difference
between the net carrying value and the fair value, which is estimated based upon
anticipated undiscounted operating cash flows before debt service charges. Based
upon a review  of its  long-lived  assets,  the  Company  did not  recognize  an
impairment loss for the fiscal year ended June 30, 2006;  however,  there can be
no assurance  that the Company  will not  recognize  an  impairment  loss on its
long-lived assets in future periods.

INCOME TAX ACCOUNTING

The  Company  determines  its  provision  for income  taxes  using the asset and
liability  method.  Under this method,  deferred tax assets and  liabilities are
recognized  for the future tax  effects of  temporary  differences  of  existing
assets and  liabilities and their  respective tax bases.  Future tax benefits of
tax loss and credit  carryforwards  also are  recognized as deferred tax assets.
When necessary,  deferred tax assets are reduced by a valuation allowance to the
extent  the  Company  concludes  there  is  uncertainty  as  to  their  ultimate
realization.  Deferred tax assets and liabilities are measured using enacted tax
rates in effect for the year in which those  temporary  differences are expected
to be  recovered  or settled.  The effect on  deferred  taxes of a change in tax
rates is recognized in income in the period that the change is enacted.

As of June 30, 2006 and 2005,  the Company  maintained  a deferred  tax asset of
$2,004,333  and  $1,456,114,  respectively.  The  Company  has  not  provided  a
valuation  allowance  against its deferred tax assets after  consideration  of a
future  gain on the  disposal  of  certain  land  adjacent  to its  Collegeville
facility and anticipated  future  profitable  operating  results.  However,  the
amount  realizable  may be  reduced  if future  taxable  income is reduced or is
insufficient to utilize the entire deferred tax asset.


                                       15


EMPLOYMENT CONTRACTS

For the fiscal years ended June 30, 2006,  2005 and 2004 the Company paid a base
salary of $333,727,  $335,768 and $326,542 to Joseph Roberts, Chairman and Chief
Executive  Officer  and  $237,846,  $236,324  and  $228,864  to  Kathleen  Hill,
President and Chief Operating Officer,  respectively.  The Company currently has
no  employment  contracts  with  either  of such  individuals,  as all  previous
employment contracts with such individuals  expired. The Compensation  Committee
of the Board of Directors is currently  engaged in discussions  with Mr. Roberts
and Ms. Hill with respect to their  compensation for the fiscal year ending June
30, 2007.

CAPITAL EXPENDITURES

The Company has no other  material  commitments  for  capital  expenditures  and
believes that its existing cash and cash  equivalents,  cash from operations and
available  revolving  credit  will be  sufficient  to  satisfy  the needs of its
operations and its capital  commitments for the next twelve months.  However, if
the need arose,  the Company  would seek to obtain  capital from such sources as
continuing debt financing or equity financing.

EFFECTS OF INFLATION

Substantially  all of the  Company's  agreements  with its  customers  allow the
Company to pass  through to its  customers  its  increases in the cost of labor,
food  and  supplies.  The  Company  believes  that it  will  be able to  recover
increased  costs  attributable  to inflation by  continuing to pass through cost
increases to its customers.

MEDICARE AND MEDICAID REIMBURSEMENTS

A substantial  portion of the Company's revenue is dependent upon the payment of
its fees by customer health care facilities,  which, in turn, are dependent upon
third-party payers such as state governments,  Medicare and Medicaid.  Delays in
payment by third party payers,  particularly  state and local  governments,  may
lead to delays in collection of accounts receivable.

ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Financial  Statements and Supplementary Data to be provided pursuant to this
Item 8 are included under Part IV, Item 15, of this Form 10-K.


                                       16


ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

On September 2, 2003 the Company  engaged BDO  Seidman,  LLP ("BDO  Seidman") to
serve  as the  Company's  principal  independent  certified  public  accountant,
effective immediately.  On January 10, 2005, the Company retained Moore Stephens
as its independent  certified  accountants in place of BDO Seidman, who resigned
as the Company's  independent auditors effective December 23, 2004. The decision
to retain Moore Stephens was recommended by the Audit Committee of the Company's
Board of Directors and approved by the Company's Board of Directors.

In connection with the audits for the two most recent fiscal year ended June 30,
2004 and the subsequent  interim period through December 23, 2004, there were no
disagreements  between the  Company and BDO Seidman on any matter of  accounting
principles or practices,  financial statement  disclosure,  or auditing scope or
procedure which, if not resolved to the satisfaction of BDO Seidman,  would have
caused BDO Seidman to make reference to the subject matter of such disagreements
in  connection  with  its  reports  on  the  Company's   consolidated  financial
statements for such years.

In  connection  with the  completion  of its audit of,  and the  issuance  of an
unqualified report on, the Company's  consolidated  financial statements for the
fiscal  year  ended June 30,  2004,  the  Company's  independent  auditors,  BDO
Seidman,  communicated  to the Company that the following  matter  involving the
Company's  internal  controls and operation were  considered to be a "reportable
condition",  as defined under standards established by the American Institute of
Certified Public Accountants, or AICPA.

The Company did not have  sufficient  competent  accounting  personnel  and as a
result  processes  relating to preparation of the Company's  income tax accrual,
including lack of timely management review, contributed to a material adjustment
of the income tax  accounts in the fourth  quarter of the fiscal year ended June
30, 2004.

Reportable  conditions  are matters  coming to the attention of the  independent
auditors  that, in their  judgment,  relate to significant  deficiencies  in the
design or  operation  of  internal  controls  and  could  adversely  affect  the
Company's  ability to record,  process,  summarize  and  report  financial  data
consistent  with the  assertions of management in the financial  statements.  In
addition,  BDO Seidman has advised the Company that they  consider  this matter,
which is  listed  above,  to be a  "material  weakness"  that,  by  itself or in
combination  could  result  in a more than  remote  likelihood  that a  material
misstatement  in the financial  statements  will not be prevented or detected by
our employees in the normal course of performing their assigned functions.

As required by SEC Rule 13a-15(b), the Company carried out an evaluation,  under
the   supervision  and  with  the   participation   of  its  management  of  the
effectiveness of the design and operation of the Company's  disclosure  controls
and procedures as of June 30, 2004. Based on the foregoing,  the Company's Chief
Executive   Officer  ("CEO")  and  Principal   Financial  Manager  ("PFM")  have
determined  that the  Company's  disclosure  controls  and  procedures  were not
effective at a reasonable  assurance level based upon the deficiency  identified
by BDO  Seidman.  However,  the CEO and PFM noted that the Company has  remedied
this  deficiency and did not note any other  material  weaknesses or significant


                                       17


deficiencies in the Company's  disclosure  controls and procedures  during their
evaluation.

The  report of BDO  Seidman  on the  consolidated  financial  statements  of the
Company as of and for the two most recent  fiscal  years ended June 30, 2004 did
not  contain  any  adverse  opinion  or  disclaimer  of  opinion,  nor were they
qualified or modified as to uncertainty, audit scope, or accounting principles.

The foregoing  disclosures  were previously  reported in Item 4 of the Company's
current  report on Form 8-K filed with the SEC on January 10, 2005.  The Company
provided BDO Seidman with a copy of the foregoing disclosures and requested that
BDO Seidman furnish the Company with a letter  addressed to the SEC stating that
it agreed with such statements. A copy of such letter, dated January 7, 2005 was
filed as Exhibit 16.1 to Form 8-K, dated January 10, 2005.

During the two most recent fiscal years ended June 30, 2004 and through December
23, 2004, neither the Company nor someone on its behalf consulted Moore Stephens
regarding  (i)  the   application  of  accounting   principles  to  a  specified
transaction,  either  completed or proposed;  or (ii) the type of audit  opinion
that matters or reportable events as set forth in Items 304 (a) (1) (iv) and (a)
(1) (v) of Regulation S-K.

ITEM 9A - CONTROLS AND PROCEDURES

Based on their  evaluation,  as of the end of the period covered by this report,
the  Company's  Chief  Executive  Officer and Principal  Financial  Manager have
concluded the Company's  disclosure controls and procedures (as defined in Rules
13a-14 and 15d-14  under the  Securities  Exchange  Act of 1934) are  effective.
There have been no significant  changes in internal controls or in other factors
that could  significantly  affect these controls subsequent to the date of their
evaluation,   including  any  corrective  actions  with  regard  to  significant
deficiencies and material weaknesses.

It should be noted that the Company had been advised by BDO Seidman LLP that the
Company should not have included the  independent  audit report prepared by such
firm for the fiscal  years ended June 30, 2004 and June 30,2003 in the Form 10-K
for the fiscal year ended June 30, 2005.  As a result,  the Company filed a Form
8-K on October  11, 2005 under Item 4.02 -  Non-Reliance  on  Previously  Issued
Financial  Statements or a Related  Audited Report or Completed  Interim Review.
Management  believes its  disclosure  controls  and  procedures  are  effective,
despite the filing of this Form 8-K because a) the date of the audit report from
the previous  auditors was not changed from the report included in the Company's
Form 10-K for the fiscal  year ended June 30,  2004 and b) the  Company  was not
aware of any  information  which would  change the  information  included in the
audit  for the  fiscal  year  ended  June 30,  2004.  Management  took the steps
necessary to ensure a re-audit for the Fiscal Years ended June 30, 2004 and June
30, 2003 and accordingly engaged Moore Stephens, P.C. to conduct the re-audit.
Such re-audit is included in the Financial Statements which are being filed with
this Form 10-K/A. Such re-audited Financial Statements did not change any of the
information which had been included in the independent audit by BDO Seidman, LLP
for the Fiscal Years ended June 30, 2004 and June 30, 2005.


                                       18


ITEM 9B - OTHER INFORMATION

As disclosed in Item 3-Legal Proceedings, the Company received $2,500,000 in the
quarter  ended June 30, 2005,  as a result of the  successful  resolution of its
litigation  against a former client.  For the year ended June 30, 2005, the jury
award is reported as Other Income, net of legal fees and related expenses in the
amount of $378,762.

PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

This information will be contained in the Proxy Statement of the Company for the
2006 Annual Meeting of Shareholders  under the caption  "Directors and Executive
Officers of the Registrant", and is incorporated herein by reference.

ITEM 11 - EXECUTIVE COMPENSATION

This information will be contained in the Proxy Statement of the Company for the
2006 Annual Meeting of Shareholders  under the caption  "Executive  Compensation
and Compensation of Directors" and is incorporated herein by reference.

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT

This information will be contained in the Proxy Statement of the Company for the
2006 Annual Meeting of Shareholders  under the caption "Security  Ownership" and
"Election of Directors" and is incorporated herein by reference.

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

This  information  will be contained in the Proxy  Statements of the Company for
the 2006 Annual Meeting of Shareholders under the caption "Certain Relationships
and Related Transactions" and is incorporated herein by reference.

ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES

The accounting firm of Moore Stephens,  P.C.  ("Moore  Stephens")  served as the
Company's  independent  registered  public  accounting firm for the fiscal years
ended June 30, 2006 and 2005, respectively.  Such firm has no other relationship
to the Company or its affiliates.

AUDIT FEES

Moore  Stephens  billed the  Company  $45,000  for audit fees for the  Company's
annual consolidated financial statements for the fiscal year ended June 30, 2006
and $40,000 for fiscal year ended June 30,  2005.  BDO  Seidman,  LLP billed the
Company $53,000 for audit fees for the Company's annual  consolidated  financial
statements for fiscal year ended June 30, 2004.


                                       19


AUDIT RELATED FEES

Moore  Stephens  billed the Company  $15,000 for audit related  services for the
fiscal  year ended June 30, 2006 and $12,000  for June 30,  2005.  In  addition,
Moore  Stephens  billed the  Company  $18,500 for the audit of fiscal year ended
June 30, 2004 and 2003. BDO Seidman,  LLP did not bill the Company for any audit
related services for fiscal year ended June 30, 2004.

TAX FEES

Moore  Stephens  billed the Company  $12,000 for tax services  during the fiscal
year ended June 30, 2006 and  $11,900  for the fiscal year ended June 30,  2005.
BDO  Seidman,  LLP did not bill the Company for any tax services for fiscal year
ended June 30, 2004.

ALL OTHER FEES
Moore Stephens did not bill the Company for any other professional  services for
the fiscal years ended June 30, 2006 and 2005,  respectively.  BDO Seidman,  LLP
did not bill the Company for any other fees for fiscal year ended June 30, 2004.

PRE-APPROVAL POLICIES AND PROCEDURES

All audit and non-audit  services to be performed by the  Company's  independent
accountant must be approved in advance by the Audit  Committee.  Consistent with
applicable law, limited amounts of services,  other than audit, review or attest
services, may be approved by one or more members of the Audit Committee pursuant
to  authority  delegated by the Audit  Committee,  provided  each such  approved
service is reported to the full Audit Committee at its next meeting.

All of the  engagements  and fees for the  Company's  fiscal year ended June 30,
2006 were approved by the Audit Committee.

The Audit Committee of the Board of Directors  considered  whether the provision
of  non-audit  services by Moore  Stephens  was  compatible  with its ability to
maintain  independence  from  an  audit  standpoint  and  concluded  that  Moore
Stephens' independence was not compromised.


                                       20


PART IV

ITEM 15 - EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(A)1.     Consolidated Financial Statements

          Reports of Independent Registered Public Accounting Firm           F-2

          Consolidated Balance Sheets as of June 30, 2006 and 2005           F-3

          Consolidated Statements of Operations for the
          Years Ended June 30, 2006, 2005 and 2004                           F-4

          Consolidated Statements of Stockholders' Equity for the
          Years Ended June 30, 2006, 2005 and 2004                           F-5

          Consolidated Statements of Cash Flows for the
          Years Ended June 30, 2006, 2005 and 2004                           F-6

          Notes to Consolidated Financial Statements                 F-7 to F-20

          Schedule of Valuation Accounts                                    F-21

(B)  Exhibits

         The following Exhibits are filed as part of this report (references are
         to Reg. S-K Exhibit Numbers):

3.1      Amended  and  Restated   Certificate   of   Incorporation   of  Company
         (Incorporated by reference to Exhibit 3.1 of the Company's Statement on
         Form S-1 (File No. 33-4281).

3.2      By-laws of the Company (Incorporated by reference to Exhibit 3.2 of the S-1).

4.1      Specimen Stock Certificate of the Company (Incorporated by reference to
         Exhibit 4.1 of the S-1).

4.5      Registration  Rights  Agreement  between the Company and Kathleen  Hill
         (Incorporated by reference to Exhibit 4.5 of the S-1).

10.4     Company's 1991 Stock Option Plan  (Incorporated by reference to Exhibit
         10.4 of the S-1).

10.8     Guaranty Agreement between the Company and Joseph Roberts (Incorporated
         by reference to Exhibit 10.9 Annual Report on Form 10-K filed September
         27, 1992).


                                       21


10.9     Lease Agreement Between the Company and Ocean 7, Inc.  (Incorporated by
         reference to Exhibit 10.11 Annual  Report of Form 10-K filed  September
         27, 1992).

10.14    Loan Agreement  between the Montgomery  County  Industrial  Development
         Authority and Collegeville  Inn Conference & Training  Center,  Inc. (a
         wholly-owned subsidiary of the Company).  (Incorporated by reference to
         exhibit 10.14, annual report on Form 10-K Filed on September 27, 1997).

10.15    Trust  Indenture  between  Montgomery  County  Industrial   Development
         Authority  and  Dauphin  Deposit  Bank and Trust  Company,  as Trustee.
         (Incorporated by reference to exhibit 10.15, annual report on Form 10-K
         filed September 27, 1997).

10.16    Loan  Agreement  between   Montgomery  County  Industrial   Development
         Authority and Apple Fresh Foods Limited (a  wholly-owned  subsidiary of
         the  Company).  (Incorporated  by  reference to exhibit  10.16,  annual
         report on Form 10-K Filed on September 27, 1997).

10.17    Trust Indenture between the Montgomery County Development Authority and
         Dauphin Deposit Bank and Trust Company,  as Trustee.  (Incorporated  by
         reference  to  exhibit  10.17,  annual  report  on Form  10-K  Filed on
         September 27, 1997).

10.19    Fourth  Amendment  to  Revolving  Credit  Note  between the Company and
         Wilmington Trust of Pennsylvania  (Incorporated by reference to exhibit
         10.19, annual report on Form 10-K filed on September 28, 2005).

10.20    Ninth  Amendment to Loan  Agreement  between the Company and Wilmington
         Trust of  Pennsylvania  (Incorporated  by reference  to exhibit  10.20,
         annual report on Form 10-K filed on September 28, 2005).

10.21    Guaranty and Suretyship of Joseph V. Roberts (Incorporated by reference
         to exhibit  10.21,  annual  report on Form 10-K filed on September  28,
         2005).

31.1     Section 302 Certification of Principal Executive Officer

31.2     Section 302 Certification of Principal Financial Manager

32.1     Section 906 Certification of Chief Executive Officer

32.2     Section 906  Certification of Principal  Financial Manager (the Company
         does not have a Chief Financial Officer).


                                       22


                                   SIGNATURES

Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934, as amended, the registrant has duly caused this annual report to be
signed on its behalf by the undersigned, thereunto duly authorized.

Nutrition Management Services Company
(Registrant)

/s/ Joseph V. Roberts
---------------------------------
Joseph V. Roberts,
Chief Executive Officer and Director


Date:  October 20, 2006

Pursuant to the  requirements  of the  Securities  and Exchange Act of 1934,  as
amended,  this annual report has been signed by the following  persons on behalf
of the registrant and in the capacities indicated as of October 20, 2006

/s/ Joseph V. Roberts                 /s/ Kathleen A. Hill
------------------------------        ---------------------------------------
Joseph V. Roberts, Chief              Kathleen A. Hill, President and
Executive Officer and Director        Director
(Principal Financial Officer)

/s/ Richard Kresky                    /s/ Samuel R. Shipley
------------------------------        ---------------------------------------
Richard Kresky, Director              Samuel R. Shipley, Director

/s/ Michael M. Gosman                 /s/ Michelle L. Roberts-O'Donnell
------------------------------        ---------------------------------------
Michael M. Gosman, Director           Michelle L. Roberts-O'Donnell, Director

/s/ Jane Scaccetti
------------------------------
Jane Scaccetti, Director


                                       23


FINANCIAL STATEMENTS AND REPORTS OF REGISTERED PUBLIC ACCOUNTING FIRMS
NUTRITION MANAGEMENT SERVICES COMPANY AND SUBSIDIARIES
JUNE 30, 2006, 2005 AND 2004


                                TABLE OF CONTENTS

                                                                        PAGE

REPORTS OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM                                                          F-2

CONSOLIDATED BALANCE SHEETS                                              F-3

CONSOLIDATED STATEMENTS OF OPERATIONS                                    F-4

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY                           F-5

CONSOLIDATED STATEMENTS OF CASH FLOWS                                    F-6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                           F-7 to F-20

SUPPLEMENTAL INFORMATION

         SCHEDULE OF VALUATION ACCOUNTS                                  F-21




             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
   Nutrition Management Services Company and Subsidiaries
   Kimberton, Pennsylvania

We have  audited  the  accompanying  consolidated  balance  sheets of  Nutrition
Management  Services  Company and Subsidiaries as of June 30, 2006 and 2005, and
the related  consolidated  statements of operations,  stockholders'  equity, and
cash flows for each of the years in the three year period  ended June 30,  2006.
We have also  audited  the  schedule  listed in the  accompanying  index.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board [United States]. Those standards require that we plan
and  perform  the  audit  to  obtain  reasonable  assurance  about  whether  the
consolidated  financial statements are free of material  misstatement.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the  consolidated  financial  statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall consolidated  financial statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
Nutrition  Management  Services Company and Subsidiaries as of June 30, 2006 and
2005, and the consolidated  results of their operations and their cash flows for
each of the years in the three year period  ended June 30, 2006,  in  conformity
with U.S. generally accepted accounting principles.

Also, in our opinion,  the schedule presents fairly,  in all material  respects,
the information set forth therein.


                                        /s/ MOORE STEPHENS, P. C.
                                        ---------------------------------
                                        MOORE STEPHENS, P. C.
                                        Certified Public Accountants.

Cranford, New Jersey
September 8, 2006


                                       F-2


                        Nutrition Management Services Company and Subsidiaries
                                      CONSOLIDATED BALANCE SHEETS
                                               June 30,

                                                                  2006                      2005
                                                              ------------              ------------
Current assets
  Cash and cash equivalents                                   $  1,613,567              $  2,889,616
  Marketable securities                                               --                     213,561
  Accounts receivable (net of allowance for
    doubtful accounts of $964,188 and
    $958,702 in 2006 and 2005, respectively)                     2,329,601                 3,063,514
  Inventory                                                        142,220                   128,949
  Prepaid and other                                                269,353                   413,922
  Income tax refund                                                   --                      43,730
                                                              ------------              ------------
    Total current assets                                         4,354,741                 6,753,292
                                                              ------------              ------------

Property and equipment - net                                     6,637,073                 6,989,627
                                                              ------------              ------------
Other assets
  Restricted cash                                                  250,000                   250,000
  Note receivable                                                  134,865                   129,702
  Advances to officers                                             423,294                   434,283
  Deferred income taxes                                          2,004,333                 1,456,114
  Bond issue costs (net of accumulated
    amortization of $139,597 and $125,029 in
    2006 and 2005, respectively)                                   151,731                   166,295
  Other assets                                                      11,401                    11,321
                                                              ------------              ------------
    Total other assets                                           2,975,624                 2,447,715
                                                              ------------              ------------
    Total assets                                              $ 13,967,438              $ 16,190,634
                                                              ============              ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
  Current portion of long-term debt                           $    165,000              $    150,000
  Current portion of line of credit                                   --                        --
  Accounts payable                                               2,998,049                 3,991,267
  Accrued expenses                                                 213,883                   698,357
  Accrued payroll                                                  226,611                   257,319
  Other                                                             64,075                    75,190
                                                              ------------              ------------
    Total current liabilities                                    3,667,618                 5,172,133
                                                              ------------              ------------

Long-term liabilities
  Long-term debt - net of current portion                        5,714,922                 5,604,921
                                                              ------------              ------------
    Total long-term liabilities                                  5,714,922                 5,604,921
                                                              ------------              ------------

Commitments and contingencies

Stockholders' equity
  Preferred stock - no par, 2,000,000
    shares  authorized,  none  issued  and
    outstanding
  Common stock
    Class A - no  par, 10,000,000 shares authorized;
      3,000,000 issued, 2,747,000 outstanding                    3,801,926                 3,801,926
    Class B - no par, 100,000 shares authorized;
      100,000 shares issued and outstanding                             48                        48
  Accumulated other comprehensive income (net of tax)                 --                       8,240
  Retained earnings                                              1,282,487                 2,102,929
                                                              ------------              ------------
                                                                 5,084,461                 5,913,143
Less treasury stock - (common - Class A:
  253,000 shares - at cost )                                      (499,563)                 (499,563)
                                                              ------------              ------------
    Total stockholders' equity                                   4,584,898                 5,413,580
                                                              ------------              ------------
    Total liabilities and stockholders' equity                $ 13,967,438              $ 16,190,634
                                                              ============              ============


                    The accompanying notes are an integral part of these statements
                                                  F-3


             Nutrition Management Services Company and Subsidiaries
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                               Year ended June 30,

                                       2006            2005            2004
                                   ------------    ------------    ------------
Food service revenue               $ 23,366,435    $ 26,602,161    $ 27,999,905

Cost of operations
  Payroll and related expenses        9,540,157      10,789,982      11,178,474
  Other costs of operations           9,552,811      10,897,611      11,563,911
                                   ------------    ------------    ------------

  Cost of operations                 19,092,968      21,687,593      22,742,385
                                   ------------    ------------    ------------

Gross profit                          4,273,467       4,914,568       5,257,520
                                   ------------    ------------    ------------

Expenses
  General and administrative          4,965,732       4,943,466       4,909,172
    expenses
  Depreciation and amortization         399,240         576,902         620,199
  Provision for doubtful accounts        60,000         165,000         585,000
                                   ------------    ------------    ------------

  Total Expenses                      5,424,972       5,685,369       6,114,371
                                   ------------    ------------    ------------

  Loss from operations               (1,151,505)       (770,800)       (856,851)
                                   ------------    ------------    ------------

Other income/(expense)
  Interest expense                     (404,494)       (279,245)       (186,699)
  Interest income                        78,015          12,045           9,564
  Gain on Sale of Securities             44,256            --              --
  Other                                  84,020       2,121,238         (18,148)
                                   ------------    ------------    ------------

  Other income/(expense) - net         (198,203)      1,854,038        (195,283)
                                   ------------    ------------    ------------


(Loss)/income before income
  taxes                              (1,349,708)      1,083,238      (1,052,134)

Income tax (benefit)/expense           (529,266)        307,580        (201,700)
                                   ------------    ------------    ------------

Net (loss)/income                      (820,442)        775,657        (850,434)

Other comprehensive income/(loss)
  (net of tax):
  Unrealized holding gains/(losses)
    arising during period                  --             8,240            --
  Less: Reclassification
    adjustment for realized gains
    included in net income                 --              --              --
                                   ------------    ------------    ------------

  Total other comprehensive income         --             8,240            --
                                   ------------    ------------    ------------


Comprehensive income/(loss)        $   (820,442)   $    783,897    $   (850,434)
                                   ============    ============    ============

Net income/(loss) per share -
  basic and diluted                $      (0.29)   $        .27    $      (0.30)
                                   ============    ============    ============

Weighted average number of
shares - basic and diluted            2,847,000       2,847,000       2,847,000
                                   ============    ============    ============


         The accompanying notes are an integral part of these statements
                                       F-4


                                           Nutrition Management Services Company and Subsidiaries
                                               CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                                                  For the three years ended June 30, 2005

                      Class A Common Stock      Class B Common Stock                                  Treasury Stock
                      --------------------      --------------------                                  --------------

                                                                                Accumulated
                                                                                   Other                                   Total
                  Number of               Number of                Retained    Comprehensive   Number of               Stockholders'
                   Shares      Amount      Shares     Amount       Earnings        Income       Shares     Amount          Equity
                  ------------------------------------------------------------------------------------------------------------------
Balance-June
  30, 2003       2,747,000    3,801,926    100,000           48    2,177,706         --        (253,000)     (499,563)   5,480,117

Net loss              --           --         --           --       (850,434)        --            --            --       (850,434)
               -----------  -----------    -------  -----------  -----------  -----------      --------   -----------    ---------
Balance June
  30, 2004       2,747,000    3,801,926    100,000           48    1,327,272         --        (253,000)     (499,563)   4,629,683

Net Income            --           --         --           --        775,657         --            --            --        775,657
Other
Comprehensive
Income                --           --         --           --           --          8,240          --            --          8,240
               -----------  -----------    -------  -----------  -----------  -----------      --------   -----------    ---------
Balance-June
   30,2005     $ 2,747,000  $ 3,801,926    100,000  $        48  $ 2,102,929  $     8,240      (253,000)  $  (499,563)   5,413,580
Other
Comprehensive
Income                --           --         --           --           --         (8,240)         --            --         (8,240)
Net loss              --           --         --           --       (820,442)        --            --            --       (820,442)
               -----------  -----------    -------  -----------  -----------  -----------      --------   -----------    ---------

Balance-June
  30, 2006     $ 2,747,000  $ 3,801,926    100,000  $        48  $ 1,282,487  $      --        (253,000)  $  (499,563)   4,584,898


                                      The accompanying notes are an integral part of these statements
                                                                    F-5


                                   Nutrition Management Services Company and Subsidiaries
                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                    Year ended June 30,

                                                                         2006                2005                2004
                                                                     -----------         -----------         -----------
Operating activities
Net income/(loss)                                                    $  (820,442)        $   775,657         $  (850,434)
Adjustments to reconcile net income/(loss) to net cash
    provided by operating activities
  Gain on sale of marketable securities                                  (44,256)               --                  --
  Depreciation and amortization                                          399,240             576,902             620,199
  Amortization of bond costs                                              14,564              14,568              14,567
  Provision for bad debts                                                 60,000             165,000             585,000
  (Benefit)/expense for deferred taxes                                  (548,219)            167,727            (201,700)

Changes in assets and liabilities
  Accounts receivable                                                    668,750            (978,026)             14,682
  Inventory                                                              (13,265)             30,232              (3,236)
  Prepaid and other                                                      144,566              48,286             (45,506)
  Income tax refund                                                       43,730              19,618                --
  Accounts payable                                                      (993,217)            687,320             420,451
  Accrued expenses                                                      (484,477)            411,830             (17,229)
  Accrued payroll                                                        (30,708)             35,143             (24,446)
  Other                                                                  (11,196)            (85,398)             42,415
                                                                     -----------         -----------         -----------

    Net cash provided by operating activities                         (1,614,930)          1,868,859             554,763

Investing activities
  Purchase of property and equipment                                     (46,685)             (2,961)            (80,314)
  Purchase of marketable securities                                         --               (38,660)           (202,969)
  Net proceeds of marketable securities                                  249,577              36,308                --
  Repayments by employees and officers                                    10,989               1,000                --
                                                                     -----------         -----------         -----------
    Net cash provided by/(used in) investing activities                  213,881              (4,313)           (283,283)

Financing activities
  Restricted cash                                                           --                  --              (250,000)
  Proceeds from financing                                                238,869                --                  --
  Proceeds from long-term borrowings                                     275,000             436,000           4,225,000
  Repayment of long-term borrowings                                     (150,000)           (203,000)         (4,084,783)
  Repayment of financing                                                (238,869)               --                  --
  Repayment of note payable                                                --               (154,453)           (575,686)
                                                                     -----------         -----------         -----------
    Net cash provided by/(used in) financing activities                  125,000              78,547            (685,469)
                                                                     -----------         -----------         -----------

NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS                  (1,276,049)          1,943,093            (413,989)
Cash and cash equivalents - beginning of year                          2,889,616             946,523           1,360,512
                                                                     -----------         -----------         -----------

Cash and cash equivalents - end of year                              $ 1,613,567         $ 2,889,616         $   946,523
                                                                     ===========         ===========         ===========

Supplemental disclosures of cash flow information

  Cash paid during the years for
    Interest                                                         $   419,416         $   217,764         $   185,000
    Income taxes                                                     $     5,362         $     3,014         $     2,040


                              The accompanying notes are an integral part of these statements
                                                            F-6


             NUTRITION MANAGEMENT SERVICES COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE A - ORGANIZATION AND BUSINESS

    Nutrition Management Services Company (the "Company") was organized on March
    28, 1979, to provide professional  management expertise and food services to
    continuing  care and health care  facilities in the domestic  United States.
    The  Company  competes  mainly  with  regional  and  national  food  service
    management companies as well as self-managed  departments.  Apple Management
    Services  Company  ("Apple  Management"),  a wholly  owned  subsidiary,  was
    organized on November 25, 1991, to provide management service expertise. The
    Collegeville Inn Conference and Training Center,  Inc.  ("Collegeville  Inn"
    located  in  Lower  Providence  Township,   Pennsylvania),  a  wholly  owned
    subsidiary,  was  organized  on April  29,  1994.  This  facility  opened in
    September  1997, and is used as a showroom for  prospective  customers and a
    comprehensive training facility. Effective June 27, 2005, the Company closed
    the buffet  restaurant at the  Collegeville  Inn to make the entire facility
    available for catered events.  Apple Fresh Foods, Ltd. ("Apple Fresh Foods")
    was organized on November 14, 1997, to develop a cook-chill food preparation
    technology for use in the Company's food service business. Apple Fresh Foods
    operations are located at the Collegeville Inn.

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    1.  BASIS OF FINANCIAL STATEMENT PRESENTATION

    The accompanying  consolidated  financial statements include the accounts of
    the Company and its wholly owned subsidiaries. Intercompany transactions and
    balances have been eliminated in consolidation.

    2.  CASH AND CASH EQUIVALENTS

    Cash equivalents are comprised of certain highly liquid  investments with an
    original maturity of three months or less when purchased. Restricted cash is
    comprised  of a  certificate  of  deposit  which is  pledged  as  additional
    collateral against the revolver note.

    3.  MARKETABLE SECURITIES

    The Company classifies its investments in marketable securities as available
    for sale,  which are  carried at the lower of cost or market  based upon the
    quoted market prices of those  investments at period end.  Accordingly,  net
    unrealized  gains  of  $8,240  on  marketable  securities  are  included  in
    accumulated other comprehensive income as of June 30, 2005. The Company sold
    the  marketable  securities  during  the third  quarter  of Fiscal  2006 and
    realized a gain of $44,256.

    As of June 30, 2006 there were no marketable securities.

    During the years ended June 30,  2006,  2005 and 2004,  sales  proceeds  and
    gross  realized  gains and losses on securities  classified as available for
    sale were as follows:

                                       2006           2005           2004
                                     --------      ---------      ---------

      Sales proceeds                 $249,577      $  36,308      $    --
                                     ========      =========      =========

      Gross realized gains           $ 44,256      $    --        $    --
                                     ========      =========      =========

      Gross realized losses          $   --        $    --        $    --
                                     ========      =========      =========


                                       F-7


             NUTRITION MANAGEMENT SERVICES COMPANY AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


    NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

    4.  ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

    The Company's  accounts  receivable  are  primarily  related to food service
    management  fees.  Credit is  extended  based on prior  experience  with the
    customer  and  evaluation  of a  customer's  financial  condition.  Accounts
    receivable  are generally due within thirty days. The allowance for doubtful
    accounts  represents an estimate of amounts considered  uncollectible and is
    determined  based on specifically  identified  amounts that we believe to be
    based on  historical  collection  experience,  adverse  situations  that may
    affect the customer's ability to repay and prevailing  economic  conditions.
    If our actual collections experience changes, revisions to our allowance may
    be required.  The Company  believes it will be successful in its  collection
    efforts related to its outstanding balances.

    5.  INVENTORY

    Inventory,  which consists primarily of food, is stated at the lower of cost
    (first-in,  first-out  method) or market.  The Company records inventory for
    contracts which require goods to be owned by the Company.  For the remaining
    customers,  the Company purchases inventory on their behalf and a payable or
    receivable is recorded for the change in the value of these goods,  which is
    then  collected  from or paid to  customers.  As of June 30,  2006 and 2005,
    inventory was $142,220 and $128,949,  respectively.  As of June 30, 2006 and
    2005,   inventory   receivable   from  customers  was  $11,445  and  $19,324
    respectively,  while  inventory  payable to  customers  is $3,766 and $8,289
    respectively.


    6. REVENUE RECOGNITION

    The Company  recognizes  revenue when  services  have been  rendered and the
    contract price is determinable,  and  collectibility is reasonably  assured.
    Revenue is generated  primarily  from fees for food service  management  and
    facilities management at continuing care and health care facilities, schools
    and  the  Collegeville  Inn  Conference  and  Training  Center.  Revenue  is
    recognized  when  services  are  performed.  Revenues  are  recorded  net of
    discounts and rebates.  The Company has no other  obligation with respect to
    its services once services are performed.

    7.  PROPERTY AND EQUIPMENT

    Property and equipment are stated at cost. Depreciation and amortization are
    provided using the  straight-line  method over the estimated useful lives of
    the related assets or the remaining lease term, if less.

    8.  BOND ISSUE COSTS

    Bond issue costs incurred in connection  with the bonds payable are deferred
    and amortized,  using the interest method, over the term of the related debt
    and are classified as other assets on the balance sheet.

    9.  ACCOUNTING FOR STOCK-BASED COMPENSATION

    Stock  Options  issued to  Employees  - On July 1, 2005 we adopted  the fair
    value  recognitions  provisions of SFAS No. 123 R,  "Share-Based  Payments",
    under the modified prospective  transition method. Prior to July 1, 2005, we
    applied the Accounting Principles Board (APB) Opinion No. 25 intrinsic value
    accounting  method  for  its  stock  incentive  plans.  Under  the  modified
    prospective  transition method, the fair value recognition  provisions apply
    only to new awards or awards modified after July 1, 2005. Additionally,  the
    fair value of existing  unvested  awards at the date of adoption is recorded
    in compensation expense over the remaining requisite service period.


                                       F-8


             NUTRITION MANAGEMENT SERVICES COMPANY AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

    10. INCOME TAXES

    The Company  determines  its  provision for income taxes using the asset and
    liability method. Under this method, deferred tax assets and liabilities are
    recognized  for the future tax effects of temporary  differences of existing
    assets and liabilities and their  respective tax bases.  Future tax benefits
    of tax loss and credit  carryforwards  also are  recognized  as deferred tax
    assets.  When  necessary,  deferred  tax assets are  reduced by a  valuation
    allowance to the extent the Company  concludes  there is  uncertainty  as to
    their ultimate realization. Deferred tax assets and liabilities are measured
    using  enacted  tax rates in effect  for the year in which  those  temporary
    differences are expected to be recovered or settled.  The effect on deferred
    taxes of a change in tax rates is  recognized  in income in the period  that
    the change is enacted.

    As of June 30, 2006 and 2005, the Company maintained a deferred tax asset of
    $2,004,333  and  $1,456,114,  respectively.  The Company has not  provided a
    valuation  allowance against its deferred tax asset after consideration of a
    future gain on the  disposal of certain  land  adjacent to its  Collegeville
    facility and anticipated future profitable  operating results.  However, the
    amount  realizable  may be reduced if future taxable income is reduced or is
    insufficient  to utilize  the  entire  deferred  tax  asset.  See Note F for
    additional information.

    11. ACCUMULATED OTHER COMPREHENSIVE INCOME/(LOSS)

    Based on the Company's current activities, the only component of accumulated
    other  comprehensive  income consists of changes in the unrealized  gains or
    losses of marketable securities.

                                                     For the year ended June 30,
                                                        2006             2005
                                                      --------         --------
                    Beginning balance                 $  8,240         $   --
                    Current period change               60,026           13,733
                    Tax effect                         (24,010)          (5,493)
                                                      --------         --------
                    Ending balance                    $ 44,256         $  8,240
                                                      ========         ========

                    Gain on sale of securities          44,256             --
                                                      --------         --------
                    Ending Balance                        --           $  8,240
                                                      ========         ========

    12. EARNINGS/(LOSS) PER SHARE

    The Company has adopted the  provisions of SFAS No. 128.  Basic earnings per
    share is computed by dividing income available to common stockholders by the
    weighted average number of common shares outstanding during the period. SFAS
    No. 128 also requires a dual  presentation of basic and diluted earnings per
    share on the face of the  statement of  operations  for all  companies  with
    complex capital  structures.  Diluted earnings per share reflects the amount
    of  earnings  for  the  period  available  to each  share  of  common  stock
    outstanding during the reporting period, while giving effect to all dilutive
    potential  common shares that were  outstanding  during the period,  such as
    common  shares that could  result from the  potential  exercise  into common
    stock.
    The  computation of diluted  earnings per share does not assume  exercise of
    securities  that  would  have an  antidilutive  effect on per share  amounts
    (i.e.,  increasing  earnings  per share or  reducing  loss per  share).  The
    dilutive  effect of outstanding  options are reflected in dilutive  earnings
    per share by the  application of the treasury stock method which  recognizes
    the use of  proceeds  that could be  obtained  upon  exercise of options and
    warrants  in  computing  diluted  earnings  per share.  It assumes  that any
    proceeds would be used to purchase  common stock at the average market price
    during the period. Options will have a dilutive effect only when the average
    market  price of the common  stock  during the period  exceeds the  exercise
    price of the options.  Options that may have a dilutive effect in the future
    are listed in Note J.

    13. ADVERTISING COSTS

    It is the  Company's  policy to expense  advertising  costs in the period in
    which they are  incurred.  Advertising  expense for the years ended June 30,
    2006, 2005 and 2004 was $24,600, $78,789 and $112,404, respectively.


                                       F-9


             NUTRITION MANAGEMENT SERVICES COMPANY AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

    14. RECLASSIFICATION

    Certain 2005 and 2004 items have been reclassified to conform to the current
    year presentation.

    15. USE OF ESTIMATES

    In preparing the Company's financial  statements,  management is required to
    make estimates and  assumptions  that affect the reported  amounts of assets
    and liabilities,  the disclosure of contingent assets and liabilities at the
    date of the financial  statements,  and the reported amounts of revenues and
    expenses during the reporting period. Actual results could differ from those
    estimates.

    16. FAIR VALUE OF FINANCIAL INSTRUMENTS

    The Company used the following  methods and  assumptions  in estimating  our
    fair value disclosures for financial instruments:

    Cash and cash equivalents:  The carrying amounts the Company has reported in
    the  accompanying  balance sheet for cash and cash  equivalents  approximate
    their fair values.

    Investments:  The Company  estimates the fair values of investments based on
    quoted market prices.  The carrying amounts are reported in the accompanying
    balance sheet for investments in contracts approximate their fair values.

    Long-  and  short-term  debt:  The  Company  bases  the fair  values of debt
    instruments on quoted market prices.  Where quoted prices are not available,
    the Company  bases the fair values on the present value of future cash flows
    discounted as estimated  borrowing rates for similar debt  instruments or on
    estimated  prices based on current yields for debt issues of similar quality
    and terms.  The carrying  amounts are reported in the  accompanying  balance
    sheet for debt  approximate  their fair  values.  See footnote E for further
    discussion.

    17. IMPAIRMENT OR DISPOSAL OF LONG LIVED ASSETS

    The Company adopted SFAS 144,  "ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF
    LONG-LIVED  ASSETS" ("SFAS 144").  Under the  requirements  of SFAS 144, the
    Company assesses the potential  impairment of property,  plant and equipment
    whenever events or changes in circumstances indicate that the carrying value
    may not be  recoverable.  An  asset's  value  is  impaired  if  management's
    estimate  of the  aggregate  future  cash  flows,  undiscounted  and without
    interest  charges,  to be  generated by the asset are less than the carrying
    value of the asset. Such cash flows consider factors such as expected future
    operating income and historical trends, as well as the effects of demand and
    competition.  To the  extent  impairment  has  occurred,  the  loss  will be
    measured  as the  excess of the  carrying  amount of the asset over the fair
    value of the asset.  Such estimates require the use of judgment and numerous
    subjective assumptions,  which, if actual experience varies, could result in
    material differences in the requirements for impairment charges.

    18. RESEARCH AND DEVELOPMENT

    The Company incurred research and development costs related to the Company's
    Cook-Chill food preparation  technology in the amounts of $301,548,  $98,083
    and $159,893 for the years ended June 30, 2006, 2005 and 2004, respectively.

    19. NEW ACCOUNTING PRONOUNCEMENTS

    In November 2004, the Financial  Accounting  Standards Board ("FASB") issued
    SFAS No. 151, "INVENTORY COSTS - AN AMENDMENT TO ARB NO. 43." This statement
    provides  guidance to clarify the  accounting  for abnormal  amounts of idle
    facility  expense,  freight handling costs, and wasted material  (spoilage),
    among other  production  costs.  Provisions  of ARB No. 43 stated that under
    some circumstances,  items such as idle facility expense, excessive spoilage
    and other costs may be so abnormal as to require treatment as current period
    charges.  This statement  requires that those items be recognized as current
    period  charges  regardless  of  whether  they  meet  the  criterion  of "so
    abnormal."  In  addition,   SFAS  151  requires  that  allocation  of  fixed
    production  overheads  to the  costs of  conversion  be based on the  normal
    capacity of the  production  facilities.  The adoption of this  statement is
    required for fiscal  years  beginning  after June 15, 2005.  Adoption of the
    Statement  is not  expected  to  have a  material  impact  on the  financial
    statements of the Company.


                                      F-10


             NUTRITION MANAGEMENT SERVICES COMPANY AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


    NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

    19. NEW ACCOUNTING PRONOUNCEMENTS - CONTINUED

    In November 2004, the FASB issued SFAS No. 152  "ACCOUNTING  FOR REAL ESTATE
    TIME-SHARING  TRANSACTIONS  - AN  AMENDMENT  OF SFAS NO.  66 AND  67".  This
    Statement  amends  SFAS No. 66  "ACCOUNTING  FOR SALES OF REAL  ESTATE",  to
    reference the financial  accounting  and reporting  guidance for real estate
    time-sharing  transactions  that is provided in AICPA  Statement of Position
    (SOP) 04-2,  Accounting  for Real  Estate  Time-Sharing  Transactions.  This
    Statement also amends SFAS No. 67,  "ACCOUNTING FOR COSTS AND INITIAL RENTAL
    OPERATIONS  OF  REAL  ESTATE  PROJECTS,"  to  state  the  guidance  for  (a)
    incidental  costs and (b) costs  incurred to sell real estate  projects does
    not apply to real estate time-sharing transactions. The accounting for those
    operations  and costs is  subject to  guidance  in SOP 04-2,  effective  for
    financial  statements  with  fiscal  years  beginning  after June 15,  2005.
    Adoption of this statement is not expected to have a material  impact on the
    financial statements of the Company.

    In November  2004,  the FASB issued SFAS No. 153,  "EXCHANGES OF NONMONETARY
    ASSETS - AN AMENDMENT TO APB NO. 29." This  Statement  amends Opinion No. 29
    to eliminate the exception for nonmonetary  exchanges of similar  productive
    assets and replaces it with a general exception for exchanges of nonmonetary
    assets that do not have  commercial  substance.  A nonmonetary  exchange has
    commercial  substance if the future cash flows of the entity are expected to
    change  significantly  as a result of the  exchange.  The  adoption  of this
    statement  is  required  for fiscal  years  beginning  after June 15,  2005.
    Adoption of this statement is not expected to have a material  impact on the
    financial statements of the Company.

    In December 2004,  the FASB issued SFAS No. 123 (Revised 2005)  "SHARE-BASED
    PAYMENT." The  statement  requires  that the  compensation  cost relating to
    share-based payment transactions be recognized in financial statements. That
    cost will be  measured  based on the fair value of the  equity or  liability
    instrument  issued.  The  statement  covers  a  wide  range  of  share-based
    compensation  arrangements including share options,  restricted share plans,
    performance-based  awards,  share  appreciation  rights,  and employee share
    purchase plans. The Company was required to adopt SFAS 123 (R) as of July 1,
    2005.

    In May 2005,  the FASB  issued  SFAS No. 154  "ACCOUNTING  CHANGES AND ERROR
    CORRECTIONS".  This  Statement  replaces  APB  Opinion  No.  20,  Accounting
    Changes, and FASB Statement No. 3, "Reporting  Accounting Changes in Interim
    Financial  Statements",  and changes the requirements for the accounting for
    and reporting of a change in accounting principle. This Statement applies to
    all voluntary  changes in accounting  principle.  It also applies to changes
    required by an  accounting  pronouncement  in the unusual  instance that the
    pronouncement  does  not  include  specific  transition  provisions.  When a
    pronouncement  includes  specific  transition  provisions,  those provisions
    should be followed.  Adoption of this statement is required for fiscal years
    starting  after  December  15, 2005.  The adoption of this  statement is not
    expected to have a material impact on the consolidated  financial statements
    of the Company.

NOTE C - BUSINESS CONDITIONS

    The  Company's  primary  sources  of  revenues  are the  management  fees it
    receives  from  contracts  to  provide  food and  housekeeping  services  to
    continuing care facilities,  hospitals,  retirement communities and schools,
    as well as the  Collegeville  Inn which includes the Conference and Training
    Center,  Catering  facilities and the Cook Chill operations.  See Note O for
    segment reporting  information.  The Company has a business plan in place to
    improve the operating results from the Collegeville Inn.  Effective June 27,
    2005, the Company closed the buffet  restaurant at the  Collegeville  Inn to
    make the facility available for catered events.

    The  Company  is  exploring  all  reasonable  alternatives  to  improve  its
    operating  results,  including but not limited to,  increasing  food service
    revenues with targeted marketing efforts,  increasing revenues from the sale
    of the Company's  Cook Chill  products,  the sale or lease of all or part of
    the  Collegeville  Inn,  sale of  excess  land at the  Collegeville  Inn and
    reduction of operating expenses. There can be no assurance as to the success
    of any or all of these alternatives.


                                      F-11


             NUTRITION MANAGEMENT SERVICES COMPANY AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


    NOTE C - BUSINESS CONDITIONS - Continued

    Management  believes that operating cash flow, proceeds from the sale of the
    land, available cash and available credit resources will be adequate to make
    repayments of  indebtedness,  meet the working  capital  needs,  satisfy the
    needs of its operations, and to meet anticipated capital expenditures during
    the next twelve months ending June 30, 2007.

    At June 30, 2006, the Company was not in compliance with its bank covenants.
    See Note E for additional information.

NOTE D - PROPERTY AND EQUIPMENT

    The following details the composition of property and equipment.

                                              Estimated
                                             useful lives      2006            2005
                                             ------------  -----------     -----------
       Property and equipment
       Land                                       --       $   497,967     $   497,967
       Building                                   40         7,491,984       7,491,984
       Machinery and equipment                   2 - 8       3,843,867       3,864,266
       Furniture and fixtures                    2 - 8         749,434         749,434
       Other, principally autos and trucks      2 - 10         410,753         410,753
                                                           -----------     -----------
                                                            12,994,005      13,014,404
       Less: accumulated depreciation                        6,356,932       6,024,777
                                                           -----------     -----------
                                                           $ 6,637,073     $ 6,989,627
                                                           ===========     ===========

NOTE E - LONG-TERM DEBT

                                                                        2006                  2005
                                                                     ----------            ----------
   Long-term debt consisted of the following:
     Bank revolving credit, interest due monthly at
       the National Consumer rate minus .25% (effectively
       8.0% as of June 30, 2006), secured by all corporate
       assets and limited personal guarantee of the Chief
       Executive Officer; matures on July 1, 2007                       $3,499,922            $3,224,922

     Industrial Revenue Bonds (Collegeville Inn Projects) (see
       bonds payable)                                                    1,730,000             1,835,000

     Industrial Revenue Bonds (Apple Fresh Foods Projects) (see
       bonds payable)                                                      650,000               695,000
                                                                        ----------            ----------
                                                                         5,879,922             5,754,922
   Less: current maturities                                                165,000               150,000
                                                                        ----------            ----------
                                                                        $5,714,922            $5,604,922
                                                                        ==========            ==========

    In February  2001,  the Company  executed a loan agreement with a bank for a
    revolving credit and two irrevocable letters of credit issued in conjunction
    with the issuance of the Industrial Revenue Bonds,  totaling  $4,000,000 and
    $3,065,000,  respectively.  In October  2003,  the Company  entered  into an
    amended  credit  agreement  whereby  the  $4,000,000  Revolving  Credit Loan
    Facility  was  reduced  to  $3,500,000  and  $500,000  was  placed in a cash
    collateral  account  and  pledged  as  additional   collateral  against  the
    revolving  credit  line. A portion of the cash  collateral  account has been
    released and is available for  operations  and as of June 30, 2006 and 2005,
    the Company maintained  restricted cash balances of $250,000,  respectively,
    which was not available for operating purposes.

    At June 30, 2006, the Company had $3,500,000 outstanding under the revolving
    credit.  Advances  under the revolving  credit are used for working  capital
    purposes.


                                      F-12


             NUTRITION MANAGEMENT SERVICES COMPANY AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE E - LONG- TERM DEBT - Continued

    These credit  agreements  contain  covenants  that include the submission of
    specified  financial  information and the maintenance of insurance  coverage
    for the pledged  assets  during the term of the loans.  The  covenants  also
    include  the  maintenance  of a  certain  consolidated  fixed  debt  service
    coverage  ratio,  ratio of total  consolidated  liabilities to  consolidated
    tangible net worth,  and minimum  working  capital.  At June 30,  2006,  the
    Company was not in compliance with these covenants.  While not waiving these
    covenants, the Company and the bank reached an agreement on October 15, 2006
    which  maintains  the  revolving  credit line in place to July 1, 2007.  The
    Company intends to replace or retire this debt prior to that date.

    Bonds Payable - In December  1996,  the Company,  through its  subsidiaries,
    authorized two industrial revenue bond issues.

    ISSUE #1

       Title - Montgomery County Industrial  Development  Authority,  $2,500,000
       aggregate principal amount,  federally taxable variable rate demand/fixed
       rate revenue bonds ("Collegeville Inn Project") Series of 1996

       Rate - Variable, to a maximum of 17% (Variable Rate at June 30, 2006 was 5.45%)

       Term - 20 years (2016)

          Purpose - Rehabilitate, furnish and equip the Collegeville Inn

    ISSUE #2

       Title - Montgomery County Industrial  Development  Authority,  $1,000,000
       aggregate principal amount,  federally taxable variable rate demand/fixed
       rate revenue bonds ("Apple Fresh Foods, Ltd. Project") Series of 1996

       Rate - Variable, to a maximum of 15% (Variable Rate at June 30, 2006 was 4.05%)

       Term - 20 years (2016)

       Purpose - Develop a cook-chill food preparation technology

    Each  series  of  bonds  is  guaranteed  by  the  Company  and  each  of its
    subsidiaries.  The  assets of  Collegeville  Inn and Apple  Fresh  Foods are
    pledged as collateral for both series of bonds.

    The Company's bank has issued irrevocable  letters of credit in favor of the
    bond trustee for the full amount of both bond issues.  The letters of credit
    have a term of four years and can be renewed on an annual basis by the bank.
    The bank holds the mortgage on the  Collegeville  Inn building and property.
    The letters of credit are guaranteed by the parent company.

    The sinking fund requirements of the bonds are as follows:

                               Collegeville   Apple Fresh
                                   Inn           Foods        Total
                             ---------------- -----------  -----------

                2007             $115,000       $50,000    $165,000
                2008              120,000        50,000     170,000
                2009              130,000        50,000     180,000
                2010              135,000        55,000     190,000
                2011              145,000        55,000     200,000
                Thereafter      1,085,000       390,000   1,475,000
                                ---------       -------   ---------
                                1,730,000       650,000   2,380,000


                                      F-13


             NUTRITION MANAGEMENT SERVICES COMPANY AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE E - LONG- TERM DEBT - Continued

    Maturities of principal due in the following years are set forth below:

            Year Ending June 30,
            --------------------

                     2007               $  165,000
                     2008                3,669,922
                     2009                  180,000
                     2010                  190,000
                     2011                  200,000
                     Thereafter          1,475,000
                                        ----------
                                        $5,879,922
                                        ==========

NOTE F - INCOME TAXES

    The components of income tax (benefit)/expense are:

                                          Year Ended June 30,
                                          -------------------
                                2006             2005             2004
                            ------------      -----------     ------------
         Current
            Federal          $       0         $ 139,853       $       0
            State                    0                 0               0
                             ---------         ---------       ---------
                                     0                 0               0
                             ---------         ---------       ---------
         Deferred
            Federal           (422,128)          156,584        (157,662)
            State             (126,090)           11,143         (44,038)
                             ---------         ---------       ---------
                              (548,218)          167,727        (201,700)
                             ---------         ---------       ---------

                             $(548,218)        $ 307,580       $(201,700)
                             =========         =========       =========

    The tax  effects  of  temporary  differences  that give rise to  significant
    portions  of the  deferred  tax  assets and  deferred  tax  liabilities  are
    approximately:

                                                               June 30
                                                               -------
                                                       2006              2005
                                                    ----------        ----------
    Deferred tax assets
      Provision for doubtful accounts               $  414,601        $  412,242
      Excess of tax over financial statement
        basis of investments in contracts              147,970           147,970
      Vacation accrual                                 111,547           109,349
      Bonus accrual                                       --               2,150
      Charitable contribution carryforward              48,919            26,294
      Federal net operating loss                     1,304,749           871,616
      Other                                            108,181            96,737
                                                    ----------        ----------
    Total deferred tax assets                        2,135,967         1,666,358
                                                    ----------        ----------

    Deferred tax liabilities
        Depreciation                                   131,635           210,244
                                                    ----------        ----------

        Net deferred tax assets                     $2,004,332        $1,456,114
                                                    ==========        ==========


                                      F-14


             NUTRITION MANAGEMENT SERVICES COMPANY AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


NOTE F - INCOME TAXES - Continued

The deferred tax amounts are classified on the balance sheet as follows:

                                                         June 30
                                                         -------
                                                   2006             2005
                                               ------------    ------------
       Current asset                           $       --      $       --
       Non-current asset                          2,004,333       1,456,114
                                               ------------    ------------
                                               $  2,004,333    $  1,456,114
                                               ============    ============

    The  Company  also  has a  federal  net  operating  loss  carry  forward  of
    approximately  $3,000,000  expiring on December  31,  2026.  The Company has
    charitable  contribution  carry  forwards in the amount of  $113,765,  which
    began to expire in the fiscal year ended June 30, 2007.

    The Company has not provided a valuation  allowance against its deferred tax
    assets after  consideration of a future gain on the disposal of certain land
    adjacent to the Collegeville Inn and anticipated future profitable operating
    results.

    The following reconciles the tax provision with the U.S. statutory tax rates:

                                                       Year Ended June 30
                                                       ------------------
                                                   2006        2005       2004
                                                   ----        ----       ----
    Income taxes, at U.S. statutory rates         (34.0)%      34.0%     (34.0)%
    States taxes, net of federal tax benefit       (5)         (1.0)       4.2
    Nondeductible expenses                          7           8.9       10.2
    Other                                          (8.6)      (13.6)       0.4
                                                  -----       -----      -----
    Tax expense/(benefit)                         (40.6)%      28.3%     (19.2)%
                                                  =====       =====      =====

NOTE G - RELATED PARTY TRANSACTIONS

    The Company  leases its corporate  offices,  located at 725 Kimberton  Road,
    Kimberton,  Pennsylvania,  which consists of approximately 8,500 square feet
    from Ocean 7, Inc., a corporation  controlled by the Chief Executive Officer
    of the Company,  The initial term of the lease  expired on June 30, 2003 and
    continues  on a month to month  lease  based on terms  generally  similar to
    those prevailing to unrelated parties.  The Company leases an apartment from
    the same company to accommodate  visiting clients and employees.  See Note H
    for additional information.

    Joseph V.  Roberts,  Chief  Executive  Officer and  Director of the Company,
    received  long  term  advances  of  which  $365,622  and  $374,373   remains
    outstanding  as of June 30, 2006 and 2005,  respectively.  Kathleen A. Hill,
    President,  Chief  Operating  Officer and Director of the Company,  received
    long term advances of which $57,172 and $59,910  remains  outstanding  as of
    June 30,  2006 and 2005,  respectively.  As of June 30, 2006 the Company did
    not  have a  written  agreement  with  Mr.  Roberts  or Ms.  Hill  regarding
    repayment of the outstanding balances.

NOTE H - COMMITMENTS AND CONTINGENCIES

    1.  OPERATING LEASES

    The Company  leases real estate  facilities  from a  corporation  owned by a
    principal stockholder under month-to-month  operating leases,  including its
    corporate  office  building  under a  month-to-month  lease  based  on terms
    management believes to be generally similar to those prevailing to unrelated
    parties.  During the years ended June 30, 2006,  2005 and 2004, rent expense
    paid to the related party was $261,165, $259,758 and $261,766, respectively.


                                      F-15


             NUTRITION MANAGEMENT SERVICES COMPANY AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


NOTE H - COMMITMENTS AND CONTINGENCIES - Continued

    The Company is also obligated under various  operating  leases for operating
    equipment for periods expiring through 2007. During the years ended June 30,
    2005,  2004 and 2003,  rent expense was  $317,486,  $390,341  and  $287,440,
    respectively, for all operating leases.

    Minimum annual rentals under  non-cancelable  operating leases subsequent to
    June 30, 2006, are as follows:

                                                        Operating
    Year Ending June 30,                                equipment
    --------------------                                ---------

            2007                                       $   23,485
            2008                                            4,865
            2009                                                0
            2010                                                0
                                                           ------
           TOTAL                                           28,350


    2.  LITIGATION

    On February 7, 2001,  the Company filed a suit against a major client in the
    Court  of  Common  Pleas  of  Chester   County,   Pennsylvania,   which  was
    subsequently  removed to the United  States  District  Court for the Eastern
    District of  Pennsylvania.  On February 25, 2005,  judgment was entered on a
    jury verdict in favor of the Company, in the amount of $2,500,000 in damages
    related to its claims. The former client did not appeal the judgment and the
    Company  received  $2,500,000  on June 1, 2005.  For the year ended June 30,
    2005 the  Company  reported  this  award as Other  Income  in the  amount of
    $2,121,238, which comprises the jury award net of legal fees and expenses in
    the amount of $378,762.  The Company filed a post-trial  motion to amend the
    judgment  to add  prejudgment  interest.  On June 1, 2006,  this  motion was
    denied.

    The Company is involved in litigation with a construction contractor related
    to the  renovations of  Collegeville  Inn. The Company denies the claims and
    has asserted offsets against the amounts claimed. The case is in discovery.

    Although it is not possible to predict with  certainty  the outcome of these
    unresolved  legal  actions or the range of possible  loss or  recovery,  the
    Company  believes  these  unresolved  legal actions will not have a material
    effect on its financial position or results of operations.

    In addition to the  litigation  described  above,  the Company is exposed to
    asserted and unasserted claims. In the opinion of management, the resolution
    of these  matters will not have a material  adverse  effect on the Company's
    financial position, results of operations or cash flows.

NOTE I - STOCKHOLDERS' EQUITY

    1.  CLASS A COMMON STOCK

    The  Company  is  authorized  to issue  10,000,000  shares of Class A Common
    Stock, no par value, of which holders of Class A Common Stock have the right
    to cast one vote for each share held of record in all matters submitted to a
    vote of holders of Class A Common Stock.  The Class A Common Stock and Class
    B Common  Stock  vote  together  as a single  class on all  matters on which
    shareholders  may vote,  except when class voting is required by  applicable
    law.

    Holders of Class A Common Stock are entitled to dividends, together with the
    holders  of Class B Common  Stock,  pro rata  based on the  number of shares
    held.  In the event of the  liquidation,  dissolution  or  winding up of the
    affairs of the Company,  all assets and funds of the Company remaining after
    the payment to creditors and to holders of Preferred Stock, if any, shall be
    distributed,  pro rata,  among the  holders of the Class A Common  Stock and
    Class B Common Stock.


                                      F-16


             NUTRITION MANAGEMENT SERVICES COMPANY AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


NOTE I - STOCKHOLDERS' EQUITY - Continued

    2.  CLASS B COMMON STOCK

    The Company has authorized  100,000  shares of Class B Common Stock,  all of
    which were issued to the Chief Executive Officer and majority shareholder of
    the Company,  in exchange for 100,000  shares of Class A Common Stock.  Each
    share of Class B Common  Stock is  entitled to seven votes on all matters on
    which shareholders may vote, including the election of directors.  The Class
    A Common Stock and Class B Common  Stock vote  together as a single class on
    all matters on which  shareholders  may vote,  except  when class  voting is
    required by applicable law.

    Each share of Class B Common Stock also is  convertible at any time upon the
    option of the holder  into one share of Class A Common  Stock.  There are no
    preemptive, redemption, conversion or cumulative voting rights applicable to
    the Class B Common Stock.

    3.  PREFERRED STOCK

    The Company is authorized to issue 2,000,000  shares of Preferred  Stock, no
    par value,  of which no shares have been issued.  The Preferred Stock may be
    issued by the Company's  Board of Directors from time to time in one or more
    series.


                                      F-17


             NUTRITION MANAGEMENT SERVICES COMPANY AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


NOTE J - EMPLOYEE STOCK PURCHASE PLAN

    EMPLOYEE STOCK PURCHASE PLAN

    The Company has a stock purchase plan that allows participating employees to
    purchase,  through payroll deductions,  shares of the Company's common stock
    at 85 percent of the fair market value at specified dates. At June 30, 2006,
    all employees  were eligible to  participate in the plan. A summary of stock
    purchased under the plan is shown below.

                                            2006          2005          2004

          Aggregate purchase price         $   -         $   -         $   -
          Shares purchased                     -             -             -
          Employee participants               14            14            14

    The Company  accounts for  employee  stock plans under the  intrinsic  value
    method prescribed by Accounting  Principles Board ("APB") No. 25. The effect
    of  the  pro-forma  information  in  accordance  with  Financial  Accounting
    Standards Board SFAS No. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION," was
    determined immaterial.

NOTE K - DEFINED CONTRIBUTION PENSION PLAN

    The Company  sponsors a 401(k) plan for all  employees who have attained the
    age of twenty-one and have completed one year of service. Eligible employees
    may  contribute  up to 15% of their  annual  compensation  to the plan.  The
    Company  can match 100% up to the first 4% of employee  plan  contributions.
    Participants  are vested 20% for each year of service  beginning  after year
    three and are fully vested after seven service years. During the years ended
    June 30, 2006, 2005 and 2004, Company  contributions to the plan, which were
    charged to expense, amounted to $13,378, $12,886 and $23,889, respectively.

NOTE L - CONCENTRATION OF CREDIT RISK

    Financial   instruments,   which   potentially   subject   the   Company  to
    concentrations  of  credit  risk,  consist  principally  of  cash  and  cash
    equivalents and accounts receivable.  A substantial portion of the Company's
    revenues are dependent  upon the payment by customers who are dependent upon
    third-party  payers,  such as  state  governments,  Medicare  and  Medicaid.
    Generally,  the Company  does not require  collateral  or other  security to
    support customer  receivables.  The Company routinely assesses the financial
    strength of its customers  and,  based upon factors  surrounding  the credit
    risk of its customers,  establishes an allowance for uncollectible  accounts
    and, as a  consequence,  believes that its accounts  receivable  credit risk
    exposure beyond such allowances is limited.

    As of June 30, 2006, the Company had cash balances of approximately $795,376
    subject  to  credit  risk  beyond  insured  amounts  at  various   financial
    institutions  having high credit  standings.  The Company  believes that its
    exposure  to credit  risk loss is  limited.  The  Company  does not  require
    collateral and other security to support  financial  instruments  subject to
    credit risk.

NOTE M - MAJOR CUSTOMERS

    The Company's Food Service  Management  Segment had sales to three customers
    representing  approximately the following percentage of total revenues,  for
    the years ended June 30, 2006, 2005, and 2004, respectively:

                                    Years ending June 30,
                                    ----------------------
                                    2006     2005     2004
                                    ----     ----     ----
         Customer A:                 34%      29%      28%
         Customer B:                 14%      21%      20%
         Customer C:                 10%      11%       8%

    The loss of any such customer  could have a material  adverse  effect on the
    Company's future results of operations.


                                      F-18


             NUTRITION MANAGEMENT SERVICES COMPANY AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


NOTE N - MAJOR SUPPLIERS

    For the years ended June 30, 2006, 2005 and 2004, respectively,  the Company
    purchased the following  percentages of its food and non-food  products from
    two vendors:

                                    Years ending June 30,
                                    ----------------------
                                    2006     2005     2004
                                    ----     ----     ----
         Vendor A:                   38%     45%      40%
         Vendor B:                   19%     19%      18%

    In the  event of a  disruption  in the  Company's  relationship  with  these
    vendors  or any  disruption  in  the  vendor's  business,  the  Company  has
    alternate sources of supply for its food and non-food products.

NOTE O - BUSINESS SEGMENTS

    The Company follows the disclosure  provisions of SFAS No. 131,  DISCLOSURES
    ABOUT SEGMENTS OF AN ENTERPRISE  AND RELATED  INFORMATION.  This  management
    approach  focuses  on  internal  financial   information  that  is  used  by
    management to assess performance and to make operating  decisions.  SFAS No.
    131 also requires disclosures about products, services, geographic areas and
    major customers.

    The financial  information  of the Company's  reportable  segments have been
    compiled utilizing the accounting  policies described in Note A Organization
    and  Business.  The  Company's  reportable  segments  are (1)  food  service
    management  and (2) training and conference  center.  Deferred taxes are not
    allocated to segments.  The  management  accounting  policies and  processes
    utilized in compiling  segment  financial  information are highly subjective
    and, unlike financial  accounting,  are not based on authoritative  guidance
    similar to accounting  principles generally accepted in the United States of
    America.  As  a  result,   reported  segment  results  are  not  necessarily
    comparable with similar information reported by other similar companies.


                                                                    Training and
                                                    Food Service     Conference
                                                     Management        Center           Total
                                                    ------------    ------------    ------------

As of and for the year ended June 30, 2006:
       Food service revenue                         $ 22,854,359    $    512,076    $ 23,366,435
       Depreciation and amortization                      44,712         354,528         399,240
       Income/(loss) from operations                    (266,472)       (885,033)     (1,151,505)
       Interest expense                                 (251,281)       (153,213)       (404,494)

       Interest income                                    78,015            --            78,015
       Income/(loss) before tax expense/(benefit)     (1,309,629)        (40,079)     (1,349,708)
       Net income/(loss)                                (780,363)        (40,079)       (820,442)
       Total assets                                    6,727,731       7,239,707      13,967,438
       Capital expenditures                               46,685            --            46,685

As of and for the year ended June 30, 2005:
       Food service revenue                         $ 25,736,139    $    866,022    $ 26,602,161
       Depreciation and amortization                      78,034         498,868         576,902
       Income/(loss) from operations                     673,251      (1,444,051)       (770,801)
       Interest expense                                 (168,476)       (110,769)       (279,245)
       Interest income                                    12,045            --            12,045
       Income/(loss) before tax expense/(benefit)      1,581,374        (498,137)      1,083,237
       Net income/(loss)                               1,273,794        (498,137)        775,657
       Total assets                                    8,839,079       7,351,555      16,190,634
       Capital expenditures                               25,139          15,266          40,405


                                       F-19


             NUTRITION MANAGEMENT SERVICES COMPANY AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


NOTE O - BUSINESS SEGMENTS -Continued

As of and for the year ended June 30, 2004:
       Food service revenue                         $ 27,074,155    $    925,750    $ 27,999,905
       Depreciation and amortization                     123,192         497,007         620,199
       Income/(loss) from operations                     568,035      (1,424,886)       (856,851)
       Interest expense                                 (117,525)        (69,175)       (186,700)
       Interest income                                     9,564            --             9,564
       Loss before tax expense/(benefit)                (623,018)       (429,116)     (1,052,134)
       Net loss                                         (421,318)       (429,116)       (850,434)
       Total assets                                    6,427,248       7,852,047      14,279,295
       Capital expenditures                               60,785          19,529          80,314


NOTE P - QUARTERLY FINANCIAL DATA (UNAUDITED)

    The following quarterly  financial data is unaudited,  but in the opinion of
    management includes all necessary adjustments for a fair presentation of the
    interim results.

                                                                Fiscal 2006
                                   ----------------------------------------------------------------------
                                   September 30,        December 31,        March 31,          June 30,
                                   --------------     ----------------    -------------     -------------

Revenues                            $ 6,210,508         $ 6,222,872          $ 5,515,970      $ 5,417,085
Gross profit                          1,215,509           1,120,659              895,912        1,041,387
Net income (loss)                      (205,827)           (138,107)            (276,027)        (200,481)
Net income (loss) per share
    - basic and diluted             $      (.07)        $      (.05)         $      (.10)     $      (.07)


                                                                Fiscal 2005
                                   ----------------------------------------------------------------------
                                   September 30,        December 31,        March 31,           June 30,
                                   --------------     ----------------    -------------     -------------

Revenues                            $ 6,769,547         $ 6,610,033          $ 6,627,280      $ 6,595,301
Gross profit                          1,303,312           1,344,259            1,048,082        1,218,915
Net income (loss)                      (209,533)            (48,852)            (445,892)       1,479,934
Net income (loss) per share
    - basic and diluted             $      (.07)        $      (.02)         $      (.16)     $       .52

The Company's  net  income for the  quarter  ended June 30,  2005  includes  the
    proceeds, net of legal and related expenses from the jury verdict related to
    the litigation discussed in Note H.


                                      F-20


                            SUPPLEMENTAL INFORMATION

             Nutrition Management Services Company and Subsidiaries
                         SCHEDULE OF VALUATION ACCOUNTS
                     For the three years ended June 30, 2006

The following sets forth the activity in the Company's valuation accounts:


                                                                Allowance for
                                                               Doubtful Accounts
                                                               -----------------

Balance at June 30, 2003                                          2,292,336

     Provision for bad debts                                        585,000

     Write-offs                                                        --
                                                                  ---------

Balance at June 30, 2004                                          2,877,336

     Provision for bad debts                                        165,000

     Recoveries, net of write-offs                                2,083,634
                                                                  ---------

Balance at June 30, 2005                                            958,702

     Provision for bad debts                                         60,000

     Write-offs                                                     (54,514)
                                                                  ---------

Balance at June 30, 2006                                          $ 964,188
                                                                  =========


                                      F-21